Small businesses can feel the strain more than most, when it comes to late payments, but the impact of this can be reduced by following some practical steps to managing your cash-flow and tackling late payments at the earliest stage.
There is a common confusion amongst new and inexperienced business managers - that cash-flow and revenue is the same thing. Most businesses spend all their efforts on generating revenue but don't put the same thought or effort into cash collection and managing cash-flow. Of course, chasing money is seen to be distasteful, but the ability to collect the money in a timely way could mean the difference between success and failure in business.
A common complaint from many SMEs and new businesses is that their clients don't pay their invoices on time. Here is my advice for protecting your company from constant cash-flow crises:
1) Always conduct a credit check on new clients. This is relatively easy to do, and doesn't cost much - Experian, Equifax and Noddle all offer free or low-cost services online. Don't do business with companies who have no credit rating.
2) Make sure everyone is clear about your payment terms up front, and that it is written into agreements for provision of products or services.
3) Be clear about how many days credit you will extend and once the account goes over that time, don't expose your business to more risk - act on it.
4) Be particularly careful if you have one or several big clients who represent a large percentage of your turnover. If any of them pay late, or worse, if you lose them as a client, it could bring your business down.
5) Consider purchasing credit insurance. This will protect you in case a major client goes bust owing you money.
6) Invoice in a timely manner. Get to know the accounts payable teams in your client companies, and make sure they know when to expect your invoice - and be consistent! Always call them if the payment is delayed. Most accounts departments are helpful and keen to make sure you get paid but frequently, the paperwork can get held up in the system
7) Find out exactly how your clients' payment systems work. Do they do weekly or monthly payments? Check that your invoice has been received and has been approved and is with accounts for payment. Do this well in advance of when you expect payment to give you time to have invoices authorised. Too many companies chase after they expect to receive payment only to be told that there is no record of the invoice.
8) If you are nervous about damaging client relationships and you don't have a credit controller, create an accounts email which you can use for a seven day warning.
9) On occasion your clients may have genuine temporary cash flow issues. Be reasonable and agree staged payments, as this is one way to keep the cash coming and will often buy client loyalty in the future.
10) When all else fails, go straight to a small claims court, a summons usually has the desired effect - but be sure that you have tried all other avenues first.
Neeta Patel is Chief Executive of the New Entrepreneurs Foundation, a non-profit organisation that supports young entrepreneurs and start-ups.