One of the downsides of running a small business is the problem of late payments. It is often seen by many companies as just a part of business life that they have to put up with. Many small firms don’t even have any form of debt management or chase debts when invoices are late.
However, this shouldn’t be the case and credit control is an important element of any business – no matter how large or small. Without an effective credit control process in place, cash flow can become an issue and businesses might be unable to pay their own debts.
Small business debt management
Research carried out by the small business commissioner, and Growth Street, a business lender, highlighted the impact that late payments are having on SMEs.
Three-quarters of those businesses questioned said that they were worried about chasing up unpaid invoices in case this results in them not being paid at all. This is a significant issue if businesses aren’t chasing up invoices or adding on late payment charges because they think it might make the situation worse. A similar number had concerns that taking action on debts could damage their client relationship.
Often it is the larger companies who are more at fault from late payments. The report found that 43% of small businesses and half of medium-sized companies had problems with late payments from larger firms.
Late payment of commercial debts
There are some key benefits when you chase debts and it’s not an area that businesses should be afraid of. Unfortunately, many firms have the idea that the client will pay up eventually, but the longer you leave a debt unpaid the less likely you are to recover the money.
Leaving customer invoices unpaid and failing to chase them up gives the debtor no urgency to pay. If they are still receiving products or services from the company, then there isn’t any incentive for them to clear the balance. In effect, you are subsidising their business with an interest-free loan.
Keeping this situation running in the long term gets customers into the practice of paying late, as there isn’t any financial impact on them. Putting their account on hold, adding on late payment interest and other charges are all ways in which you can draw the matter to their attention swiftly.
Effective credit control
Having good credit control practices within a business can help with cash flow. Where a company is struggling with the late payment of commercial debts their own cashflow can be negatively impacted. This has a knock-on effect for their own debt management, with invoices not paid, and in extreme circumstances, it can make them unable to continue trading.
From the start of a client relationship, payment terms and conditions should be set out clearly and upfront. This ensures that both parties know what they’re working with and when invoices are due. If possible, ask for payment upfront, or at least a deposit for services, particularly if you are working with a new client. It might also be beneficial to offer discounts to customers for prompt payment.
Even with good credit control systems, there will still be customers who can’t or won’t pay on time. In these situations, it’s important to start chasing the debt as soon as it is overdue. This sets the scene for the client that you don’t just let late payments go unchecked. It can also resolve any issues there might be with the invoice or any payment problems the customer has.
The addition of late payment charges and interest can be added onto invoices to help with debt recovery costs. You can find out more here on the compensation businesses are entitled to for late payments.
The use of a debt collection agency
Companies often keep hold of their debts until it is too late and they become unrecoverable. This can be due to the customer going into administration or disputes that cannot be resolved.
The use of a debt collection company shouldn’t be seen as a last resort. A professional debt collection agency can start working for you as soon as the invoice is overdue and have the skills and experience to collect the money owed swiftly.
Rather than being seen as an additional expense, outsourcing your commercial debts can actually be a cost-effective exercise. They have the tactics to negotiate successfully with debtors and understand the excuses that are often made for late payments.
They will aim to gain payment in full straight away and often just the use of a third party will be enough for the customer to settle the debt. At this point, they see that non-payment could lead to court action being instigated and their credit report being negatively affected. This can prompt even the most reluctant of payers into clearing the debt.
Help to chase debts
The use of a business debt collection agency can relieve a business owner of the stress of chasing late payments. This enables them to get on with running the company.
At CEA Limited, our professional debt collection team can start work quickly to chase debts. We will make initial contact with the customer on your behalf, taking care to maintain the relationship you have built up. Often debts are recovered just from the first letter or phone call and taking swift action can prevent customers from building up large debts.
To discuss your debt management requirements contact us today on 0113 532 8350 or email office@cealimited.co.uk.
More information
The importance of invoice payment terms