When the cheque isn’t in the post ~

Ten Top Tips To Beat Late Payment

If you have business customers you will often be expected to invoice rather than taking payment at the time of their visit. Late payment is a problem for any business and in the current economic downturn there is a worsening climate of late payments and bad debts, and the associated impact on cash flow. How many times have we been told “The cheque’s in the post”?  It is reported that 59% of small and medium sized enterprises encounter difficulties with outstanding debts, with 33% claiming that customers’ failure to pay on time risks the survival of their business.  Despite the fact that you have a right to charge interest for late payment at 8% above the Bank of England’s reference rate, do we really want it to get to this stage?  Here are a few things you can do to avoid getting to this:

Credit check your customers

Check out their ability to pay before you confirm big bookings, or agree to credit. Speak to your accountant about th best ways to do this, which might include via their bank, credit reference agencies, or some of their existing suppliers.  Further financial information may be obtained from Companies House or the Institute of Credit Management.  Consider bi-annual checks for existing customers.

Diversify your customer base

Having all your eggs in one basket can be risky.  If this one customer runs into difficulties or fails to pay, this will have a far bigger impact on you than if your business is spread over a number of customers.

Agree payment terms in advance

Ensure you discuss payment terms at the outset, and record the agreed payment schedules.  If invoicing for any of the services or expenditure up front, ensure you set a precedent and ask for this before you start work or deliver.  Then ensure that payment dates are clear on each and every invoice.

Split invoices

When you have supplying over and above what was included in your original quote (e.g. extra covers, or additional bar bills), invoice the two amounts separately.  This means that if any amounts are then in dispute, the main invoice (which should match your quote) will not be held up, only the variations.

Invoice on time

Your customers won’t pay until they receive the invoice.  If payment terms are for example 14 days from invoice, it stands to reason, the longer you leave it to send the invoice the longer you will need to wait to be paid.  But there are other reasons to invoice promptly.  The longer the time gap between providing the service and receiving the invoice, the more likely the customer will forget the value they have received and the more likely they are to question or challenge items.  It also reflects the professionalism of your business – if you don’t take the effort to invoice on time what message does this send the customer about the importance of being paid promptly?  Make sure you have a system in place to ensure invoices are sent within days of completion, or for on going business on the specified day each month.

Put controls in place

Set up a system, which ensures you know at any one time what is due in this week, and what is outstanding.   I come from a sector of the industry where everyone’s performance was measured by ‘debtor days’ – the number of days’ debt outstanding at any one time.  This was published to all client managers on a daily basis, and it was their job to ensure that anyone who had not paid in 30 days (our specified payment terms) was followed up immediately.  It doesn’t need to be anything complicated, just a spreadsheet, which someone has a responsibility to monitor daily.

Make payment simple

Ensure that payment methods are simple.  If you encourage payment on line how easy is it for customers to set up a payment.  I have had a number of different suppliers recently who have either failed to give bank details, or who use a third party to monitor payments, where it is not clear what details to put into the payee section.  If paying by cheque, is it clear who to make the cheque out to, and where to send the cheque?  And how easy is it for you to monitor your bank account to check who has paid, and which invoice this relates to?

Communicate with customers

If payment is due, speak to the customer!  We complain to everyone that so and so has not paid, but have we actually asked for the money?  Sometimes it is a genuine over sight, and other times they are just putting it off to help their own cash flow, but rest assured if we don’t chase your invoice will be bottom of the pile.   This does not need to be done in an aggressive way, simply pick up the phone and ask the question “I noticed that you have not yet paid your invoice, which was due yesterday.  Can you tell me when we will receive payment?”  Be prepared for any ‘excuses’ and have your response ready; remain polite, but firm.   Identify who holds the purse strings and initiates payments, and build rapport with them.  Note I have said to phone – it’s far harder to ignore than a letter or e-mail, and you know for certain that they have received the message.  Better still, call in if they are local.  If you are worried about damaging your relationship, get someone else to call, who can be detached and objective.

Spot potential problems early

Don’t rest on your laurels.  Just because you have called once, keep checking for payment and keep calling.

If the theme of late payment continues try phoning them before the date it is due – “Hello, Jo, I just wanted to remind you that your invoice is due this week.  To help me monitor my cash flow, it would be useful to know which day I will receive your cheque”, or something along these lines. – This just acts as a reminder and lets them know you are monitoring it.  It is also implied that payment is only a day or two away, not weeks.

Keep any eye on customers’ behaviour – are they acting differently?  Are they suddenly difficult to get hold of?  Are they sending post-dated cheques?  Remember, prevention is better than cure.

How it impacts them

Let them know the implications of late payment.  We may not want to resort to threats, but make customers aware that failure to pay you may mean that you can’t hold their rooms or confirm their next booking until they are up to date with their payments.  If you say this you need to be prepared to carry out.  Their late payment could also potentially mean that you are unable to pay suppliers or your staff, which in turn could have a knock on effect on the quality of service they receive.  Letting them know how it will affect them is sometimes enough to prompt some action.

Look at options

If a customer is struggling themselves and simply cannot pay you in full consider the options.  If this a long term agreement you may not want to take the risk, but it is better to have some money than none, so discuss what they can give you now and when they will be able to pay the balance.

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4 thoughts on “When the cheque isn’t in the post ~

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  2. Excellent. Thanks so much for the post. -Kate

    Excellent. Thanks so much for the post. -Kate

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