Experian’s data shows that at the end of 2011, firms were waiting an average of nearly 26 days on top of their agreed payment terms to pay their bills. What’s more, 1,756 companies went under each month during the last year, leaving it up to administrators to determine whether previous commitments would be made in part or at all.
It is vital that firms place as much emphasis on getting paid as they do on securing the business in the first place. While sales and delivery are important, they are meaningless if you are not getting any reward for your product or service.
Here are ten ways that British businesses are making sure they get paid and remain financially strong and successful.
1. Avoid the wolves in sheep’s clothing
It sounds obvious, but make sure you are dealing with a real business. Establish whether you are dealing with a sole trader or a limited company and validate your findings against what you have been told. Conduct a site visit where possible. You can even use tools such as Google maps to confirm an address.
2. Find out whether they pay or delay
Having established that they do actually exist, obtain a credit report for all potential customers, suppliers and other business partners to confirm they are still trading, are likely to still be trading in the near future and whether they’ll be able to pay you.
3. Use the sales grapevine to your advantage
Make greater use of your sales team and ask for their insights into current or new customers. They may have heard useful information worth investigating from their contacts in the industry. Consider using credit forums to get further insight from peers on businesses that you are considering taking on.
4. Give credit where it’s due, but don’t burn the badly scored completely
A firm with a low credit score is not necessarily one to avoid completely. Set credit limits that are more appropriate to those businesses or ask for a deposit or full payment up front if necessary.
5. Check the devilish detail when requesting payment
Issue invoices as soon as you can and ensure make sure that all the relevant details are included. Ensure it is sent to the right person/department, the address is correct, a purchase order number is listed where possible and you include the budget holder’s name. Credit terms should be clearly marked within the invoice.
6. Use email not snail mail
Invoice via email wherever possible, using a PDF. It’s cheaper, quicker, and more effective, and can help you to prove it has been sent and received. Reminder letters can also be sent electronically.
7. Get closer and develop a better understanding of your customers
Contact your customers regularly, and take time during the early stages of the relationship to open a channel of communication. Understand your customers’ processes and make sure that you make it as easy as possible for them to process and clear your invoices for payment. Consider risk as well as invoice value when prioritising who to chase for payment. Proactively enquire about potential queries or delays and always talk with a smile in your voice.
8. Be quick off the mark when following up on invoices
Call customers five to seven days after despatching the invoice to ensure that they have been received and also to ensure there are no billing queries. If you leave the chasing until the invoice becomes due, then you may find that they did not receive the invoice or that they have been sitting on a query that would delay payment.
9. Chase, chase and chase again
Record the names of the people you talk to and the details discussed. If payment is promised, ask for a date and record this. Mail monthly statements as a reminder of the money owed to you. 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.
10. Keep on monitoring
It is just as important to review the credit position and payment performance of your existing customers as it is for new ones. Monitor performance on an ongoing 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, shorten payment terms, demand a deposit upfront or, in extreme cases, payment in full before delivery. This approach can also highlight opportunities. There could be the opportunity to increase sales or offer more credit to organisations whose financial health improves.