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September 9, 2015

How to avoid the late payment trap

Late payment is one of the biggest issues facing small and medium sized businesses. The difference between a customer paying on time or making a late payment can make all the difference between success and failure.

Despite a number of Government-backed initiatives in recent years, such as the Prompt Payment Code, late payment continues to be a huge concern for business owners.

And it’s getting worse. In 2008, late payment alone cost British business £19 billion. This year, according to the Government’s business secretary Sajid Javid, it is set to exceed £40 billion.

Fortunately, there are a number of things you can do to alleviate the problem. Using an online accounting services provider, such as Xero can be a huge help. Here are some effective ways financial software can prevent the late payment trap:

  • Invoice on time – It may sound obvious but according to Xero, this is one of the most common problems. When business is booming and you’re busy making money, taking the time to send invoices can be difficult. Of course, the longer it takes to send an invoice out, the longer it takes to get paid. Using cloud accounting software to quickly prepare and send invoices can save valuable time and effort
  • Consider scheduled invoicing – did you know that you can set up online accounting software to send out invoices automatically at specific dates and times? This means you don’t have to make time to do it yourself or have to wait for your accountant or bookkeeper to do it for you
  • Monitor your cash flow – Make sure you know exactly what money you have coming in and when. If your cash flow is squeezed, you may not be able to pay staff or suppliers and may struggle to stay afloat. Good accounting software can help you track cash flow by creating useful charts of inflows(sales of goods or services) and outflows (accounts payable) for your business
  • Always follow up on overdue invoices – Time is money and for busy business owners, it is always at a premium. Online accounting can help by automating reminders based on your settings
  • Keep track of late payers – Good accounting software can provide ageing reports that analyse what you’re owed in order of age of invoice. It shows at a glance who owes you money and how much. Some providers, like Xero will also show you when your customer opened your invoice online, so no more lost invoice excuses!

If all else fails, you may have to grasp the nettle and proactively chase payments. This can be difficult and feel daunting but your customer has taken your time and/or your product and has a legal and moral duty to pay up according to the agreed terms. Here are a few helpful pointers:

  • Pick up the phone – Communication is key when chasing up overdue payments. If you are still waiting to be paid, pick up the phone and talk to the individual responsible, a direct, personalised approach can make a big difference
  • Keep it professional – Be polite but firm when chasing overdue invoices. It can be stressful and upsetting waiting to be paid but keep your cool, remain professional and remember you are asking for no more than what you are due
  • Know your legal rights – As a small business owner, you have the right to charge interest on late payments. The legislation terms ‘late’ as 30 days from the customer receiving the invoice or the delivery of the goods or services if they come later. The statutory interest is 8% plus the Bank of England base rate, currently 0.5%. If you have to keep chasing, it might be worthwhile reminding your customer about the legal implications
  • Don’t give up – It might be tempting just to write off missing payments but you’ve done the work and are entitled to be paid. Letting go of a few payments here and then can soon mount up and cause problems. You may want to consider taking out a case with the Small Claims Court to get what you’re owed

Whatever your issues with late payments, fear not, there are solutions. Your number one priority should be to deal with the problem fast, accurately and professionally. If you don’t already use it, online accounting software can take the strain out of dealing with late payers.

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