Tackle late payment, keep cashflow moving

Managing late payment - staying one step ahead  

Theo Chatha, Group CFO and MD Specialist Finance, Bibby Financial Services

Many profitable businesses experience cashflow challenges due to late paying customers.  Our latest research with 1,000 SMEs revealed the average amount owed to businesses in unpaid invoices is £66,770 and that over 40% had dipped into emergency funds in the last twelve months to keep their business on track.

You can’t guarantee that every single customer will pay an invoice on time, but there are processes you can put in place to keep late or missed payments to a minimum and reduce the risks posed by late payment or the failure of a customer. There's also the time cost, with SMEs spending an average of nine hours a month chasing late payments.

Below are my top eight practical tips for tackling late payments.

1. Know your customers

Use a reputable credit reference agency to run credit checks on all new customers before offering credit terms and set appropriate limits. A simple credit check online could save valuable time and money further down the line. This should be an ongoing process, as even the most reliable payers can have a change in circumstances.

2. Create a credit policy

So that both you and your customers know where they stand, your credit policy should set clear actions for dealing with all credit scenarios. This could include accepting new customers, the changing status of existing customers, exceptions to payment terms, changing credit limits, suspending accounts and use of third parties to support enforcement.

3. Be clear on payment terms

Make your payment terms clear and consistent from the start and advise customers about any late payment charges to avoid disputes. Include payment terms on all invoices and reminders and consider offering incentives for early payments.

4. Implement strong credit control processes

Send out invoices promptly within a defined timeframe, ideally within five days, after services or products have been provided. Make sure you know at any given time who owes you money and how much, and ensure disciplined collection processes for following up on outstanding invoices.

5. Build strong customer relationships

It may seem obvious, but it’s worth remembering that good customer relationships support prompt payment. Regularly check in with customers and make sure you know how satisfied they are with your products and services.

6. Keep a stop list

Make sure you have an up-to-date list of customers you do not want to give more credit to and ensure relevant employees know where to access it. Always inform late payers that they are ‘on stop’. This is often all that is required to gain payment.

7. Consider Invoice Finance

Invoice Finance can greatly support cashflow management as it bridges the gap between raising an invoice for and receiving payment. Unlocking cash from unpaid invoices releases working capital from what you have already earned, without taking on additional debt. Invoice finance can be provided with credit control support so that you can reclaim this time back to focus on other priorities. 

8. Safeguard your business with Bad Debt Protection

Implementing good payment processes can help you reduce the risk to your business from late or non-paying customers. However, there are many circumstances where a customer’s refusal or inability to pay cannot be pre-empted. If you are concerned about how customer non-payment could affect your business performance and profitability, Bad Debt Protection can safeguard your business against the impact of a customer’s insolvency or inability to pay.

Key Takeaways

Late payment is a challenge for many SMEs, but it does not have to define your cashflow or hold your business back. Clear processes, strong customer relationships and disciplined credit control can all play a vital role in reducing risk and freeing up time to focus on growth.

It’s also important to remember that you don’t have to tackle late payment alone. Working with trusted advisors and exploring financial solutions designed to support cashflow - such as Invoice Finance - can help reduce the impact of late payments and provide greater confidence when planning ahead.

By staying proactive and putting the right support in place, you can protect the hard work you’ve already put into your business and keep cashflow moving, even when customers don’t pay on time.