With the Government estimating that small firms are owed £26bn in late payments we share our best tactics for being paid on time.
As small business owners and freelancers the long-standing belief that ‘the customer is king’ may hold true. Great customer experience and service are often the basis for business success but this doesn’t mean extending compassion to payment terms.
Current research reveals that sole traders chase an average of £200 per month in late payments – or approximately a fifth of their average monthly income. Given this it’s understandable that over 20% of sole traders have stopped chasing a debt. They resign themselves to accepting unfair treatment and lose out on hard earned income.
The consequences are restricted cashflow and reduced opportunities with long-term growth possibilities being inhibited too. However, there are a couple of easy steps you can apply to turn your late-payers into punctual ones:
Detail your terms up front
Getting the terms straight at the start avoids confusion later on. A written set of terms and conditions, outlining payment terms, service agreements, invoicing process and refund policy, should be accepted by your client before any work commences. It sets the clients’ expectations and supports you should you need to refer to the Small Claims Court.
Make your invoices clear and ensure they’re addressed to the person who makes payment, not necessarily the contact you’re producing the work for. Research shows that debtors pay invoices two weeks after the due date so it could be worth setting your payment terms to 14 days. Sending each invoice out as soon as possible means clients will still have the value of your work fresh in their minds.
Communicate with your clients
When invoices become overdue reminder emails or statements can help get the message home that you’re serious about being paid. Abetter option is to pick up the phone and talk to someone. Reminders from a real person are so much more persuasive. Early and often wins this race.
Charge customers for late payments
As small business owners or sole traders you’ve probably won business through building up close relationships with your customers. Having built a great rapport with these customers over time it can be difficult to have a conversation about overdue invoices. Remember, you’re charging for completed work and are therefore entitled to charge customers for late payments as well as interest (at 8% over the Bank of England base rate).
The Late Payment of Commercial Debts Regulations 2002 states that £40 of late fees can be charged on due sums of less than £1,000 whilst £70 can be charged for payments of £10,000 and less.
This sounds more expensive than it is. In an era when you can run a complete business from a mobile phoen there are countless apps than can help with budgeting and admin as sell as engaging with customers. If you choose to use one of the services such as Paym you can use your mobile number to receive payments straight into your bank account. It covers 90% of current accounts and is a freat way to beat ‘no cash’ excuses from customers, if you’re in a B2C business. It’s a win-win, quick for you and secure for them.
Healthy cahsflow is king, or at least queen, for every small business. Fine tune your processes, stop your excuses and bank what’s due to you!