Lentells Limited

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Thursday, 07 July 2022 12:41

Dealing with late payments

Late payments are a perennial problem for small business owners, but pressures have increased in recent months, according to a poll from the Federation of Small Businesses (FSB).

In a study of 1,271 business owners, 30% said they had seen the late payment of invoices increase over the last three months, with a further 8% experiencing other forms of poor payment practice.

As a result, 8% of respondents said late payments currently threaten their organisation, which would equate to around 400,000 firms in the UK.

It comes at a time when various wider economic problems present a challenge for SMEs.

While there's little you can do to prevent the knock-on effect of wider pressures on your supply chain, there are a few steps you can take to give yourself the best possible chance of being paid on time.

Agree your terms

To avoid any misunderstandings or confusion down the line, its best practice to outline your payment terms before you undertake any work for your customer.

This allows you to set out the work you're doing, what your fee is, and how long your customer has to pay it, leaving no room for future disputes - and it also gives you an opportunity to explain what you will charge in interest or fees if your customer does miss the payment deadline.

If you haven't agreed on a payment date, a 30-day deadline usually applies, after which you can charge statutory interest and debt recovery costs.

Statutory interest stands at 8% plus the Bank of England base rate for business-to-business transactions, and you can also charge a fixed sum ranging from £40 to £100 depending on the amount of debt.

Some purchasers have their own terms, however, which can be much longer than 30 days - if you're supplying a client like this, make sure you're clear on their terms, and weigh up the risks and benefits of working with them.

Invoice promptly and clearly 

Sending your customer a clear, accurate invoice as soon as possible after the agreed work has been done should put you in the best position to receive your payment on time.

Your invoice should include:

  • a unique company ID number
  • business name, address and contact details
  • the client's company name and address
  • what you're charging for
  • your pre-agreed payment terms
  • the date the goods or service were provided
  • the date of the invoice
  • the amount charged
  • any VAT (if applicable)
  • the total amount owed.

Accounting software can make this process easy, with many platforms allowing you to generate template invoices based on the customer information you have in the system.

You may also have the option to link to an online payment platform, making it easy for your customers to click through and get the payment done.

Chase up your payments

Another step that software can help with is the follow-up - sending reminders to your customers who haven't made the payment yet.

Rather than having to remember all of your outstanding payments and follow them up yourself, you can set up automatic emails to send over regular intervals.

This takes the weight off your mind, but it also offers the same advantages as an automatic invoice - your reminders will be clear, with accurate information, and an easy link for customers to complete their payment

Last modified on Tuesday, 04 October 2022 11:53

        

 
 

Chard Office

17-18 Leach Road 
Chard Business Park 
Chard
Somerset 
TA20 1FA

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01460 64441

Seaton Office

Kingsway
50 Fore Street
Seaton
Devon
EX12 2AD

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01297 20584

Taunton Office

Ash House, Cook Way
Bindon Road
Taunton
Somerset
TA2 6BJ

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01823 286274