1 Customer goes bust
2 Dispute over services / product supplied
3 Customer is defrauding your business
Second, look at why slow payment takes place, and typically its because of:
4 Customer ignores your terms & conditions
5 You have no legally binding terms & conditions
6 Customer is following their standard practice
7 Customer has cash flow difficulties of their own
Working through these, its possible for many firms to dramatically cut the risk of bad debt in their business.
It all goes back to why your customer is buying from you. Are they buying from you because you are cheapest, or are they buying from you because your product / service is what they want?
For most, its actually the latter, and price (and payment terms) are a secondary buying factor. So why is this relevant? Well it means that you, the supplier, can dictate payment terms. If your customer wants your product, and you think you are the best at supplying it, then why not require payment in advance?
Payments in advance eliminate bad and slow debt and make (most) businesses cash positive. Don't underestimate how this can transform your business - its a nice place to be!
Sometimes, and normally where price is a greater factor in the buying decision OR when dealing with huge organisations, there is less scope to negotiate upfront payment.
So, other steps are needed!
- Can a reduced up front payment / deposit be obtained. We think most SME's out there can at least get some form of upfront deposit
- Implement terms and conditions: Just because you write 'Due in 30 days' on top of an invoice, doesn't make it binding! Such a statement is meaningless if written post-contract. Get payment terms into the Ts and Cs!
- Credit check all new customers, get a deposit and set a credit limit. Then stick to it!
- If someone has not paid, set a credit limit to indicate the point at which that customer will nto be supplied anymore, and stick to it, even if they are a nice bloke!
- Set up your accounts package to automatically email suppliers a reminder 7 days before payment date, and then firmer reminders beyond that. (See our Christmas offer below for a package that will do this)
- After you've exhausted chasing a client (through the systemised reminder process above), pass the debt to a collection agency. There are many professional firms out there, and often this will elicit a response without any talk of court etc. It also keeps your relationship with the customer in tact
- Review the cost to your business of working with slow payers. If you are losing considerable time yourself, or employing a credit controller, then are those customers paying you enough to work for them?
- Consider using a finance firm to chase your invoices for you - the cost of doing so might just balance things once the cost of your time chasing is factored in
- Above all - never expose your business to a risk with a single customer that could take your business down in the event of non-payment
PS: SPECIAL FESTIVE OFFER
****We love online accounting so much, as a special Christmas pressie are including a full years Kashflow license at no extra cost throughout December for all new client sign ups****
ther e is a small amount of small print, pls email us at plymouth@taxassist.co.uk
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