Tips for preventing late payments as a small business
Small businesses saw a sharp increase in the length of time clients took to pay their invoices last month, according to data from accounting software Xero.
The amount of time businesses had to wait for payment in January rose by 0.6 days to 30.5 days. On average, businesses were made to wait an extra 8.4 days to be paid than originally agreed, which is up by 1.8 days.
The latter is the highest peak since the first lockdown in August 2020, when late payments skyrocketed.
A review of the late payment policy was announced in December by Grant Shapps, stating: “That many small firms are routinely paid late is intolerable and presents a real barrier to productivity, the creation of high-skilled jobs and ultimately economic growth.”
A consultation is running until 25 April 2023 on the review of late payment practices and rules.
What can you do as a small business to prevent late payments?
Late payments are a frequent issue for many businesses, and the problem not only impacts your cash flow but also wastes precious time as you are having to chase unpaid invoices.
Here are a few steps you can take to reduce the chances of late payments:
Research your clients
If your potential customer is another business, you can check their credit history. You can find out if they have a history of making late payments or if they have missed any payments previously. This should give you a good indication of any potential problems.
Agree clear payment terms from the start
Make your payment terms clear to your customer before you start delivering the work. The payment terms should be in writing, ideally as a contact.
Send invoices promptly and accurately
Invoicing should be a high priority for all businesses. Ensuring invoices are sent out promptly and accurately, reduces the possibility of late payments. Making mistakes or leaving off important details could delay payment.
Build good relationships with clients
The stronger the relationship you have with your clients, the less likely they will pay late. Although this can still happen and is something to keep in mind when chasing for payment.
Thanking customers for prompt payment is good practice and helps encourage swift payments in the future.
Send out regular reminders
Regular reminders can help ensure you are paid in a timely manner. Sometimes payment deadlines can be missed due to a genuine mistake or because of a technical error. However, a quick phone call to the client might easily resolve this problem.
When chasing payment, it is beneficial to speak to the client on the phone rather than email, as you will be certain that the customer is aware of their late payment.
If this proves time-consuming, however, there are various apps that integrate with existing cloud accounting platforms that will automatically send out chasers to late payers.
For more advice on late payments, get in touch with our expert accountants today.
