According to Atradius Group, a leading credit insurance company, 46% of all B2B sales are paid via credit, and 48% of these payments are late. Finding effective ways to get paid on time as a small business from late payers can be the key reason why a business fails or succeeds.
As a business owner, these statistics sound like a nightmare. Therefore, it is extremely important that businesses adopt innovative solutions to make sure that their payments are collected on time. It is also important for business owners to understand the financial dynamics of their business and the processes that can help improve Cash Flow. An important strategy to understand and improve Cash Flow is to use Cash Flow Forecasting, which can massively improve the health of your business. We have also prepared a cash flow forecasting guide, which can be extremely helpful in helping plan for situations where collections are low and cash shortages can occur.ย Working with our in-house credit control specialists, we have outlined strategies to help improve collections.
Create policies and credit applications
The most common reason why businesses are not paid on time is due to a majority of them not having any credit management policies on top of which they are also not carrying out any credit checks before they sell to their customers. Therefore, the first and foremost step for any business, big or small, is to create clearly defined credit control and collection policies for their business.ย
A credit policy is basically a set of rules that are used to determine various aspects that are related to billing. These may include payment terms and the process of collection of these payments. Moreover, the credit policy can also cover a suitable guideline to deal with those accounts that have not paid their dues. You should ask your customers to complete a credit application before agreeing to provide credit.
Related: Clear House Accountants offer an effective control system to optimize cash flow and avoid bad debts.
Create terms and Conditions for your business
It is essential for any business to prepare terms and conditions, which should be a part of the contract signed with a customer. This minimises the payment disputes making it easier for the business owner to effectively manage their business finances. Business owners can opt for legal advice to ensure their terms and conditions are sufficient enough to protect their interests.ย
You may use our template for the terms and conditions available on our growth portal hub.ย If you are still unclear, you may speak to ourย accountants, who specialise in the credit-control procedure and can guide you through the process.
Consider the following conditions when you are preparing your terms and conditions document.ย
- Mention and specify how and when payments are made.
- Outline penalties for late payments along with a rate of interest or fee.
- Disclose any additional fees other than payment, like credit card fees.
- All terms and conditions should be in compliance with the government and the concerned legal authorities.
To avoid any dispute, business owners should make sure that their customers have signed the terms and conditions document before providing any goods or services.
Automate Invoices / Cloud-based management for invoicing
Cloud-based accounting software is the future of billing and invoice generation. It is highly recommended for businesses to automate their invoicing process by using an invoicing app or accounting software system. As a business owner, you could also speak to specialist online accountants who are qualified in the use of the latest cloud accounting software and can help you get up and running with cloud software within a matter of minutes. Having an effective invoicing system in place can improve collection efficiency by as much as 30% and will help your business to be paid on time.
Related: If you are looking for options to automate your payment system, read our guide to learn about the Best Cloud Accounting Software for Businesses.
When choosing accounting software, make sure that you choose software that is cost-effective, easy to use andย HMRCย compliant.ย The traditional invoice generation techniques take longer, and there is a higher probability of losing track of the invoice sent or received. Automating your invoice generation process will allow you to create, edit and send invoices from anywhere around the world. The software will also make it easy for you to keep track of the payment and give reminders in case the payment has been delayed. ย Our accounting team have compiled a list of the Top 5 Credit Control Software in the video below. Watch it to start setting up your credit control process with maximum effectiveness.
Video: Top 5 Credit Control Software
Credit Control Software helps in creating a healthy cash flow for your business and also to improve the efficiency of your debt management. Consider these 5 Credit Control Software to improve your business’s finances.
Accept new payment methods
In the fast-paced age of science and technology, business owners are expected to be more flexible with how they deal with their clients. One form of flexibility that business owners can demonstrate is to be open to different methods of payment. Business owners should consider expanding their payment channels to make it more convenient for buyers to make transactions. The right payment plan could not only help you retrieve your payments on time, but it could also boost your sales.ย
With trends shifting towards e-commerce, credit card payments are not the only option that you can rely on to accept payments. In addition to credit cards, consider accepting PayPal payments, EFT, ACH, direct bank transfers, and other methods that are suitable for your business and safe for you and your customers.
Track and Review Payment Patterns
If you extend your payment deadlines, you are putting your business at risk. Therefore, before you give any extensions, review the payment pattern of the concerned buyer. ย If a particular client is known for delaying payments, then think twice before settling another transaction with him. As a general practice, businesses must review their existing and new clients; this will help to identify any potential financial problems that may arise in the future. A proactive approach to payment procedures is sometimes the best way for small businesses to be paid on time.
Tips to make your payment system more efficient
Invoice Promptly
You must send invoices to your clients right away. Make sure that the invoice has been received and that it highlights the payment terms along with the due date. In case of an overdue account, follow up immediately to avoid any dispute or distress. The earlier you inform your client about their dues. The easier it will be for you to keep track and take action accordingly. This practice will help your small business to be paid on time.
Related: Understanding the invoicing process in detail can help you improve your payment structure. Learn more through our detailed guide that explains the invoicing process.ย
Provide discounts for early payments
You can use different tactics to make your client pay you on time. One of these is to reward your clients with an early payment discount. To entice a client, you should offer them minimal discounts. This may seem like a burden, but think of it as a long-term investment and a way for your business to be paid on time.ย ย
Avoid overdue accounts
As mentioned above, it is advised for all small business owners to avoid accepting orders from clients who are already overdue. Either you can completely reject their order, or you can revise your payment policies for such clients.ย
Make payment collection a priority
As a small business owner, you should make it part of your terms and conditions to not pay sales commissions or bonuses until the payment is received from sales on which the commission was due. This will give the clients an incentive to make their payments without delay.ย
Purchase Credit Insurance
If you have international customers or large accounts, make sure your business has the insurance to cover any unforeseen events. As a small business owner, you may have to enrol under the relevant kinds of business insurance to provide you coverage when the time comes. Read our guide to understand the different kinds of insurance and which one might be suitable for your small business.ย
Build a diverse customer base
All small businesses should focus on having a diverse customer base and expand it over time. A more diverse customer base will reduce the chances of late payments and make your company free of late payment-related risks.
Clear House Accountants are expert Accountants in London who provide quality bookkeeping services, financial reporting, data analysis, business consultancy, and other strategic planning services. Our accountants have been successful in providing their financial knowledge and expertise to businesses of all sizes along with ensuring that they save as much time and money for their clients as possible.
