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One of the most common challenges faced by small businesses is routine late payment of invoices. Sad to say, this practice is increasingly the norm and can severely hamper cash flow.  However, the problems it causes could be very serious, with the Federation of Small Businesses estimating that 50,000 firms could go out of business each year,

Chasing up debtors takes time and money that small business can ill afford and although the government is aware of the situation, legislation to remedy it is still some way off. In the meantime, there are some simple steps that small businesses can take to improve their chances of getting paid on time.

Clear, upfront payment terms

It’s important to draw up specific payment terms and put them in writing, preferably in a contract, so that anyone who chooses to do business with you understands how you operate.

Keep payment terms short but be realistic. If, for example, you really need to be paid in 30 days, it’s best to factor in likely delays and establish payment terms at around 14 days.

Invoicing best practice

Send out your invoices promptly and if you invoice electronically set up a read receipt. It’s simple to do and can be useful down the line if you need to chase payment.

Every business has its own systems and processes so always invoice the person responsible for paying your bill.  If you think it’s appropriate, you can always copy in others, such as the business owner or your main contact, to put them in the picture.

Queries can derail the payment process so it’s vital that your invoice is accurate. Yes, it’s stating the obvious, but make sure you include all relevant information, such as a customer reference or purchase order number, if appropriate, and your bank details.

Making it easy for customers to pay you makes sound commercial sense so consider payment methods and whether you could benefit by accepting payment by credit card or PayPal.

Following up

When invoices are overdue don’t let the grass grow. Follow up with a written reminder and then make phone calls. Call early in the day, keeping the tone polite but firm and keep calling until you receive payment.

Today’s cloud-based accounting software makes it really easy to manage your debtors as you can use third party apps to link with your QuickBooks, Xero or Sage data to automate much of the credit control process.

Overdue fees

Adding fees to invoices is one way to deter late payment and is a statutory entitlement. As well as claiming interest you can charge a fixed sum for the costs you incur in recovering a late payment.

Customer operation

Knowing how your customer operates can make a difference.  If, for instance, they have a regular payment run, it might worthwhile changing your invoicing process or amending your terms to take advantage of it.

When customers don’t pay

If customers don’t pay up after initial chasing it’s time to weigh up your options. With a longstanding customer, you might be able to talk things through and negotiate a solution.

Firms that employ fewer than 50 staff could ask the Small Business Commissioner to help. Last year, 300 firms successfully used this resource to claim an average of £7,000 each.

Sometimes, the only way forward is to take further action, in which case you’ll probably need to seek professional advice. If you reach this point, think carefully about how much time and money you’re prepared to spend to recover what you’re owed.