The nightmare of bad payers.
I don’t know about you, but for me slow payers are a nightmare.
It just doesn’t seem fair, especially when the more money you have to spend getting a job out of the door, the bigger this problem gets.
Because let’s be honest when it comes to the likes of you and I, driving a successful business, we can have our cash flow destroyed overnight by a bad run of payments. A big contract paying late can easily mean it is the owner that doesn’t get paid. Worse still this kills good businesses quickly and painfully.
Large businesses now have to publish their payment policy and the bigger the customer the more confident the average small business feels that they will get paid on time, even if slowly, but we can’t always pick our customers.
Now, the biggest three reasons why larger business are slow to pay us are ‘slow payer ethic’, disputed invoices and matching payments to invoices, they often are not even sure if they have or haven’t paid you.
The bigger we and our customers get, the harder it is for them to be certain if have paid you. That being said you can do something about this by sharpening up your invoicing by using a good and consistent invoicing system. We need to be sure that invoices leave our desks right first time, every time. This alone helps to reduce slow payment through ‘lost payment’ and disputed invoices.
An improved invoicing system won’t do much for ‘slow payer ethic’ though. This needs something else. Traditionally this has been debt collection or factoring. But neither of these does much for customer relations.
All that being said, if you’ve ever suffered from bad payers, endlessly chasing invoices or just plain confusion on who deals with what inside a big organisation then here are three things you can try:
- Implement a good system yourself – invoices go out consistently, accurately and on time to a named individual if possible from a named individual within your organisation. I would put a face to camera, smiling photograph on the e-mail footer. A personal relationship helps make it harder not to pay you.
- Spend some time understanding your customer invoicing system and try to make sure that your process fits seamlessly into theirs.
- What works well for our business is a regular collection. We use GoCardless by direct debit which has improved our collection rate from 80% on time to 95-98% of our regular fees collected on time. It is simple and easy to set up and roll out to customers. This is the single trick that will have the most impact on your time to collect.
In my experience a good business may spend 33% of its turnover on staff, 33% on overheads and 33% for profit (the reason most of us are in business). If at any given time a third of invoices go uncollected this business wipes out the profit margin. Go beyond 33% and that’s a cash flow issue and this business is in trouble. Slow payers really matter and managing them shouldn’t just be about debt collection – spend a little time sharpening up your systems and processes now and it may just save your business.
The way we work at Contractor Unlimited is to help busy business owners with the everyday problems we all come across, and not just accountancy services. Our team has opened, run, grown and sold businesses so we understand what you are going through and deliver without jargon and fear.
