Tackling late payment

Late payment is among the biggest challenges to the cash flow of any individual business, and it also plays a major part in the health of the wider supply chain.

It is all too easy to assume that the speed in which you are paid is out of your control, and down to your clients and customers. There is however a number of key questions businesses of all sizes should ask themselves when kicking off a relationship with a new customer, to ensure they enhance their chances of getting paid on time.

Is there anybody there?
It sounds obvious, but before you start working with a new customer, make sure that you are dealing with a real business. Four-out-of-ten businesses that start up and register never actually go on to trade at all. Beyond telephone and email correspondence, check out the address (in person or using tools like Google Street View) to ensure they are who they say they are and to confirm trading status.

Pay or delay?
Once you’ve established they exist, obtain a credit report for any potential customer, supplier or business partner. This will allow you to check out their credit status, trading history, give an indication of their trading future, and show their ability and inclination to pay bills on time. Just because a large company can pay bills on time, it doesn’t necessarily mean it will, and so checking the payment speed can give you a good indication of how your cash flow may be affected.

What’s the score?
Credit scores should be used to gauge how you might want to work with another business. A firm with a low score is not necessarily one to avoid interacting with all together. If the business is looking at risk, use the credit score to justify setting appropriate credit limits, or to request a deposit or full payment up front if necessary.

What does your business community think?
Don’t just rely on facts and figures alone, make use of your own professional and personal contacts and ask for insight into current or new customers wherever you can. Credit forums are another avenue to explore for insight from your own peers. You might be surprised how simply searching for a company name on these forums may give you the green light you are looking for, or throw up warning signs that do quite the opposite.

Double checked the detail?
A painfully common occurrence that can delay a payment for days or even weeks is a simple yet critical mistake in the invoicing process. Be sure to issue invoices as soon as you can and make sure all relevant details are included and double checked, especially if it’s the first time you are invoicing a customer. Ensure it is sent to the correct person/department, the address is right, a purchase order is listed, you include the budget holder’s name where possible, and that any credit terms are clearly marked.

In the mail or on email?
Simply, invoice via email wherever possible, using a PDF. It’s cheaper, quicker, more effective, more reliable, and can instantly prove a document has been sent and received.

Too early to chase? Probably not.
Don’t leave it any longer than five to seven days to follow up an outstanding invoice to check it has been received, that all the detail was as expected and to ensure there are no billing queries. Do this on email but follow up on the phone within 24 hours if you don’t receive any response or acknowledgement. If you hold off chasing until the invoice is due, don’t be surprised to find out that the right person did not receive it, that the email had been missed or caught in a spam filter, or that there was a query that was holding up progress internally. Be sure to record the names of the people you talk to and the details discussed. If payment is promised, ask for a date and record this. If your calls are ignored, try calling from a mobile or change the last digit of the number you are calling. It is likely to go through to a colleague of the person you are chasing, who will then transfer your call.

Time to stop monitoring? Definitely not.
Just because a customer pays on time or they have proved reliable in the past, it doesn’t mean you should count on this as a sure thing for the remainder of your engagement. It is just as important to review the credit position and payment performance of your existing customers as it is for new ones. Monitor on an on-going basis so that you can take appropriate steps if circumstances change. If a business starts to show signs of a deteriorating financial position you may have to reduce the level of credit given or shorten payment terms. On the flipside, this approach might even highlight opportunities to increase sales or offer more credit to organisations whose financial health improves.