Late payers crippling our local businesses
THE Government needs to step in to help local SMEs in the fight against late payments, by helping them to enforce their payment terms without incurring more costs.
When chasing late payments, we've all heard the excuses: "The cheque is in the post", "the director who signs the cheques is on holiday", "we are waiting for funds from a large customer and can only pay you when these funds are received" – but have you realised that you're not alone with this problem?
The Times reported only a few weeks ago that the total amount owed to Britain's small and medium-sized enterprises has climbed to a record £36.5 billion in the past six months, putting even more strain on the cash flow of already hard-pressed companies, and pushing some to the brink. SMEs have to wait an average of 41 days longer than their agreed timescale before receiving payments. Recent research shows that 37 per cent of late payers take between one and three months to pay invoices.
So what can you do if your customers are paying late?
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Firstly, if you are entering into new work with larger commercial customers, make sure you have a watertight contract drawn up. Never forget to include clear terms on late payments, including penalty clauses and strict time frames for payment. Such terms can act as an effective deterrent for late payment and encourage timely payment for services, thus avoiding these terms coming into play. Every company has a legal right to charge interest on late payments. While many small businesses don't like doing this for fear of losing the work, there's no harm in mentioning that late payment interest may be applicable on the invoice to remind the client about it. Secondly, get to know the accounts people. Large accounts departments don't know you and won't connect a face to a name, so when calling a big company's accounts department, single out someone who can help you and introduce yourself (people in the purchase ledger department are usually best as they pay the cheques). Try to speak to the same person each time and create a relationship.
Thirdly, don't put all your eggs in one basket; relying on one big client for most of your turnover is a recipe for disaster, as you will lose out if they are late payers. To avoid this, try to get a mix of clients (both small and large companies), which will spread your risk.
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