Wouldn’t it be great if every customer paid in advance or cash with order? Sadly, few businesses, especially small ones, have the commercial leverage to achieve this, especially when supplying much larger firms. However SMEs can strengthen their admin to reduce the risk of non-payment and speed up their cash flow.
Do you have a contract?
If you have a written agreement with your customer that clearly sets out what goods or services are to be supplied, by when and what the payment terms are, then that’s an important first step.
Asking for a deposit, down payment or some proportion of the contract value in advance is worth trying.
Even if you do not have a written contract, in English law a verbal agreement typically constitutes a commercial contract. Can you demonstrate a “course of dealing” through previous pieces of business with a customer? Can you prove that you have supplied goods or services that your customer has ordered? These can be useful if it comes to a dispute – which hopefully it won’t.
What’s the default position?
The Late Payment of Commercial Debts (Interest) Act 1998 is pretty clear. In short, unless you’ve agreed another term, it’s 30 days after the date on which your customer receives your invoice or you provide your goods or services.
This points to two important questions. Firstly, have you satisfactorily supplied the goods or services? Is there anything outstanding or any dispute? If not then you should be paid but, secondly, have you asked for it? Some small businesses are poor at admin and may delay or even forget to invoice the customer. To be blunt, a customer will not settle an invoice she or he hasn’t received. Always invoice the customer promptly, preferably electronically.
Photo by Nathan Dumlao on Unsplash
Follow it up
“Have you received our invoice?” is an easy question to ask the customer. With an electronic paper trail it is hard for a customer to argue the invoice has been lost in the post; though the old “it’s been swept into my spam folder” chestnut can be trolled out to justify non-payment.
Another common delaying tactic is for “accounts payable” department to argue that invoices have to be received by a certain date in the month or they’ll miss the weekly, or worse, the monthly payment run. In this day and age of electronic accounting packages, “enterprise resource planning” (ERP) systems and virtually instantaneous bank payments, delays of this sort are almost certainly intentional, resulting from treasury management decisions taken at senior management level. Therefore, it’s as well to become familiar with the customer’s internal procedures and play them at their own game, rendering invoices at the right time, in the right format and narrowing down the chances of delay in payment.
Follow it up again
When you asked whether they’d received your invoice this can be as early as the day after you sent it. But don’t let up, hoping that everything will be okay. Having established when the invoice falls due – say at 30 days – chase up accounts payable a day or two earlier to make sure the payment will be made on due date.
If it’s not, then have a procedure – albeit a simply diary entry – for chasing up again, and again, and again…
Think about it this way, every day you’re out of your money, can be a day when you have to borrow on overdraft to cover your cash flow needs. Another way of seeing it is that every day of delay is one in which you are actually financing your customer. Imagine a big, multinational company with hundreds of small suppliers, delays on payment to them, by, say a week. Think of the unfair advantage it has taken of SMEs like yours. This plays to the three unwritten rules of treasury management: 1 – pay as late as possible, 2 – get your money in as quickly as you can and 3 – the squeaky wheel gets the grease. Numbers 2 and 3 is what we are about here.
The old “it’s been swept into my spam folder” chestnut can be trolled out to justify non-payment.
What next?
If after a suitable time has elapsed – how long depends on your assessment of the customer and what you think is reasonable – it may be time to stop delivery of goods or services to the customer. In the worst case, what if the customer is actually about to go out of business and you are still supplying them? Chances are you may never get paid, which may, in turn, cause distress to your business. It’s a judgement call but be wise to the risk. You actually don’t need customers who don’t pay their bills.
When all else fails
At a certain point you have to call time. When that point is reached go, as they say, for the jugular. The small claims court can be remarkably quick and efficient and will often favour the small business over the delinquent larger non-payer. You can make a claim on-line. Be assured, if you don’t get in there quickly, the banks, and, probably HMRC, will get their claim in first and you may be left with nothing as an unpaid commercial creditor. Of course it is regrettable to go to court but as a small business you need to take all the measures available to you in order to get paid.
At the end of the day…
Non-payment is a real bane for many small businesses but good administration can go quite some way towards addressing this. Keeping tabs on invoicing, due dates and overdues, is as easy to do as setting up a simple spreadsheet and reviewing it every day. Cash, as they say, is king and making sure your customers pay their bills is just good, worthwhile business practice.