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Cash flow is probably the most important aspect of any successful business. Failing to receive payment from customers will affect all areas of the business from payroll to stock replenishment. That is why we have reached out to the business community for an answer to the question, how to deal with late, or non-paying, clients.

Set up payment parameters

This may sound simple enough but set out your stall in the beginning with strict payment terms, such as receiving the full amount within 30 days of invoice. Failing to do this opens you up to clients who will take your kindness for weakness and stretch out payment for months on end. Have a signed service agreement that clearly defines payment terms, interest and penalties for non-payment.

Summarise

Use statements to summarise outstanding accounts. People can make oversights and miss invoices, but the longer a problem is left, the more difficult it becomes to resolve.

Also, remember to invoice frequently and on time, if you are constantly late in raising invoices you may find the client isn’t going to be too fussed about paying on time.

Due diligence is a must to protect your cash flow

Before you get into business with someone do your research. A quick Google search will reveal the reputation of most businesses, do they play well with others, have they a history of late payments, do they renege on contract terms? Remember that when a company fails to perform to the standard expected they are open to online slander and the saying ‘there is no smoke, without fire’ couldn’t be truer.

Set up a PayPal or merchant account

Accounts such as these require payment when the service is performed. This eradicates the risk of non-payment and sets out a clear ‘money for goods’ service level agreement. No one is left waiting for money and everyone is happy. Bliss.

Maintain a strong, but positive, position

If you specifiy payment terms of 30 days and haven’t received payment by day 31, give them a reminder call. It’s easy for companies to forget things, we all do. Often, they will be apologetic and offer to settle the invoice as soon as possible. If they still don’t remain positive, but be forceful to come to a satisfactory resolution:

If they don’t pay, have a sequence of steps to take.

  • Have someone else within your organisation make the call
  • Send letters, documentation will help you should you need to pursue the matter through small claims court
  • Don’t be afraid to refuse future credit until payment is settled
  • If they still fail to make payment, become small claims court proceedings

Use a third party

If you find your cash flow is in trouble there are third party options available. Companies such as Bibby Financial Services and Aldermore Bank offer invoice financing options. This involves releasing cash tied up in outstanding invoices. This enables you to receive a percentage of the invoice up front, with the remaining made available when the debtor completes the payment, minus a service fee.

If you have a question you’d like answered by the business community, or you have advice and guidance you think will be relevant on one of our current topics email info@msl.co.uk or visit our FacebookLinkedIn or Twitter pages and use hashtag #MSLCommunityChest

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