Perils of late payments!

Invoice finance facilities including factoring and invoice discounting are specifically designed to help cater for cashflow issues caused by late payments

The most recent surveys compiled at the end of 2012 have been indicating that approximately one in four SME’s suffer from late payment of invoices by their customers, which is a worrying statistic.

Cashflow is the lifeblood of every business and the timely collection of monies owed is critical to ensuring the business has sufficient cash to pay its bills and staff.

There are many businesses out there who think they are doing ok because their management accounts say they are making a profit. But the fact is unless their customers pay for the goods or service provided then this paper profit does not materialise into essential cashflow.

I like to draw a comparison to football. A team’s starting XI may look good on paper and seemingly have the players needed to do well and win games, but unfortunately football is not played on paper... and neither is business!

Businesses do not go bust because they are making losses, they go bust because they run out of cash!

January Blues

This time of year can be a difficult time for many SME’s with festive shutdown periods, extra wages to pay and bills mounting. Add into the mix customers delaying payment for longer and longer and it can be a recipe for disaster.

There is a fine line between keeping the customer happy and allowing them to use their suppliers to fund their own business. They are only a good customer if they pay and business owners should not feel embarrassed in asking for payment.

Business owners need to ensure they are on right on top of administration with effective credit control systems in place. After all they have provided the goods or service so it’s their money!

Here are my top tips to help ensure late payments cause minimal strain:

Top tips

  • Implement stringent credit control procedures for chasing outstanding invoices including monthly statements and chasing letter
  • Ensure your payment terms are stated clearly on the invoice
  • Record all activity and responses in a diary or log
  • Ensure any necessary paper work required to prove the goods have been delivered or the service provided is to hand, should it be required
  • Consider using an invoice finance provider or specialist collections company who can chase the invoices on your behalf, taking the emotion out of the situation
  • An invoice finance provider can also provide monies against outstanding invoices until they are paid, which can assist cashflow, through invoice factoring and invoice discounting facilities

If you'd like to discuss how your business can implement better credit control systems or improve its business finance levels, why not give our team of experts a call on 01756 694933.