Are you fed up with yet another late paying customer? Has the resulting havoc wreaked on your cash flow become too much to handle? And has the thought of those uncomfortable ‘payment chasing’ conversations started to keep you up at night?  
Never fear, we may have just the solution you’ve been looking for. But first, let’s put this pernicious payments problem in some context. We can safely say you’re certainly not alone in your late payment blues...

The dire situation of UK late payments

Can you guess how much money the UK’s small businesses are owed in unpaid invoices? It’s not thousands of pounds. It’s not even millions. In fact, the UK’s small businesses are owed a shocking estimated half a trillion pounds overall in unpaid invoices, according to the State of Late Payment 2016 report from MarketInvoice.  
Drilling down further, the average UK small business is owed £36,186 in unpaid invoices, according to data from Bacs, the system responsible for bank-to-bank payments in the UK. The Bacs data also shows that 60% of SMEs have faced issues with chasing overdue payments.  
Is your business one of them? 
£36,186 isn’t pocket change. Think what you could do with that sum of money!   
And it’s not only the impact on your cash flow that causes problems. You can also waste a ton of time and energy following up with late paying customers. Chasing payments is rife with awkward conversations and uncomfortable emails - leading to uncertainty and stress.  
When you consider what you and your team could achieve with that precious time, the impact of late payments looks even more serious. What’s more, the resulting financial instability stops you from making nimble business decisions. You can’t decide to invest in that new piece of software, or hire that fabulous new web developer, because you’re always waiting to get paid and you’re never quite sure when it’s going to happen. That means fewer opportunities to spend time and money on growing your business in new and exciting directions.

So why do so many customers pay late?

It happens for reasons ranging from pure forgetfulness to their own cash flow issues, and everything in between. But no matter why, the end result is the same: you don’t get paid on time and your business can’t flourish. 
What’s a frustrated, cash-flow-light small business owner to do? Fortunately, tackling late payments has become easier with the advent of new software systems designed to automate common invoicing tasks and remove most, if not all, of the hassle. 
But even without investing in a whole bunch of new systems, there are some simple steps your business can take to cut down on late payments and take back control over your cash flow. Here’s a list of the ones that work best.  
  • Make payment terms clear from the first day of your relationship with a new customer. Terms should be defined in the contract and clearly repeated on each invoice. State the full amount due, the due date, and any penalties for late payment. Result: no more customers claiming that they ‘didn’t know’ the invoice was due.
  • Invoice promptly! Do yourself a favour by invoicing as soon as work is completed - and double check your invoices for accuracy to avoid any potential for delay.
  • Be tough! Stick to your guns and don’t back down on late fees. If you state them, make sure you implement them. This signals that you’re not a pushover and often spurs the customer to pay up. Remember that late payment terms are covered in UK law, so you’re well within your rights to use them. According to the website, customers must pay within 30 days of receiving your invoice unless a different payment window is agreed. You also have the right to charge interest of 8% (plus the Bank of England base rate) on unpaid sums.
  • Pick up the phone. It may help matters if you talk to your customer about why they’re not paying on time, especially if it’s becoming a common issue. Although some business owners may fear the thought of phoning a customer to discuss late payment, it doesn’t have to be unpleasant. Just make sure you stay polite, pleasant and direct. All being well, you can work together with the customer to resolve whatever issue they have with payment.
  • Make it easy for them to pay you. Let your customers choose their preferred payment method, set up a system where they can pay you instantly if they want to, send them payment reminders before payment is due, and make sure your bank information is displayed clearly and accurately on every invoice.
  • Encourage your customers to set up automatic payments by Direct Debit. Especially useful for regular recurring payments, Direct Debit ensures no more missed payments and keeps your cash flow in good shape. Online direct debit providers such as GoCardless use technology to level the playing field, offering even sole traders the benefits of the UK’s most reliable payment system.
  • If you already use a cloud-based accounting system, devote some time to exploring the features that can schedule and automatically issue invoices on your behalf. For example, Xero offers completely mobile access, so you don’t have to return to your desk to send an invoice.
  • Automate everything! By combining Xero with a Direct Debit provider such as GoCardless, you can avoid the hassle of chasing payment altogether. Over 4000 Xero customers already use the GoCardless dashboard to collect payment by Direct Debit.
  • To get paid faster, consider integrating credit control solutions such as Satago or Chaser into your accounting workflow. They automatically email customers when an invoice becomes overdue. Businesses that use them report getting paid up to 23 days faster, which has a positive impact on their cash flow situation.
  • Consider using invoice factoring to fund your cash flow. Currently used by 45,000 UK businesses, invoice factoring involves selling invoices at a discount to a third party, either a bank or an independent factoring provider such as MarketInvoice. Using a factoring service unlocks funds tied up in unpaid invoices so that your business receives funds without waiting for customers to pay.

Seriously, what about Direct Debit?

Have you ever thought of using Direct Debit to automate away those late payment hassles? It may have certain associations of being an old-fashioned and clunky payment method. But today’s new software systems have brought Direct Debit clattering into the 21st century - and now Direct Debit payments are growing at an annual rate of 5.8%.  
And it’s thoroughly reliable. Businesses that use Direct Debit via GoCardless have saved on average £2000 and three weeks each year spent chasing late paying customers.
Your business can really benefit from taking smart and considered steps to handle late-paying customers. And the wide range of tech solutions now available means that you can pick and choose the best accounting and payments system for your ongoing business needs.
Don’t let those pesky late payers slow you down a moment longer - solve your cash flow challenges today and watch your business soar skywards.
Article provided by GoCardless. GoCardless is the UK’s number one Direct Debit payments provider, helping over 20,000 businesses small and large get paid on time, every time.
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