Money, Money, Money! Why do some businesses find it difficult to collect payment for the services/products they have worked hard to provide? Some business owners are uncomfortable asking for payment, others do not have the time and, worryingly some do not even realise that they are owed the money because they simply do not have any procedures in place.
According to smallbusiness.co.uk UK SMEs are owed more than £50bn of late payments and Tide, the digital banking platform revealed that the average UK SME is owed an average of £8,500 and wasting up to 1.5 hours a day chasing outstanding invoices.
Cashflow is crucial for small businesses. One of the services I support my clients with is helping them to get paid on time and ensure they have procedures in place, so they do not lose valuable time and money, chasing invoices.
I am Anti-Money Laundering registered and insured to provide this service but I am not a credit management expert so I have spent some time talking to Tracey Westell from Pecunia (2016) Limited who offers bespoke consultancy and credit control training. She gave me some great tips and she was happy for me to share them.
Why is Cashflow so critical to small business owners?
In simple terms, business owners need money to pay suppliers, employees and overheads such as rent and utilities. Firms must ensure they have sufficient working capital for these day-to-day operations. Often this is tied up in monies owed to the business by customers who have bought goods or services on credit.
What top tips can you give to support businesses with their invoices?
The most important document you can produce for your business is an ‘Invoice’ so don’t underestimate its purpose and function and the importance of getting it right!
Here are 10 simple points to check before you send your invoice:
- Make it stand out by using your company branding
- Make sure it contains the word ‘Invoice’
- Add a unique number to make it easy to track
- List your company name, address and date
- Summarise each product/service provided and the date
- Include the name and address of the customer
- Add a payment due date
- Include bank details
- Provide a contact number and email for any queries
- Send out invoices within 24 hours of providing the services/goods and schedule polite payment reminders
And, don’t forget if you are VAT registered you need to include your VAT number.
What other considerations can help with cashflow?
Build a positive relationship with your customer
- From the very beginning, know your customer by determining the legal identity of who you are working with so that you know who is liable for payment in the event of default.
- Ensure your Terms and Conditions of Business clearly outline your payment terms and that interest will be charged for late payments.
- Have an understanding of your customers’ procedures for approving your invoices for payment and when their payment runs are made. Have a good working relationship with the individual who arranges the payments.
- Communicate with your customers – Don’t be afraid to pick up the phone and thank them for their custom whilst politely reminding them about their invoice.
- For large invoices, you could consider requesting part-payment upfront.
What can you do if non-payment persists?
- Do not be afraid to take action
For key customers, a polite telephone call BEFORE payment is due will often identify if there are any problems which can be rectified in time to minimise any potential shortfall before it is too late.
- Charge Interest
As per your Terms and Conditions of Business, this will not come as a surprise to your customers but a polite reminder that you will be re-issuing the invoice with interest is recommended.
- Know your worth
Do not reduce your invoice to encourage payment as this will not only encourage late payment in the future and de-value your brand but it is also demotivating for you as a business owner.
- Get expert advice
Speak to an expert who can guide you through the small claims process and consider training a member of your team so they can manage your credit processes with confidence.
Pecunia offers a free ‘health check’ for your company’s credit management procedures ranging from applications for a credit account through to risk assessment and cash collection. Feel free to contact Tracey on email@example.com for more details.