Late payment is a surprisingly common problem. According to a Yougov poll carried out recently, approximately 85% of SMEs are affected by late or non-payment of invoices. Figures published recently by Bacs Payment Schemes, a direct debit company, suggest that SMEs are owed in the region of £34.9 billion.
So how can SMEs minimise the issues caused by late payments?
Perform Initial Checks
Firstly, SMEs are encouraged to carry out checks before taking on new customers. Credit ratings can be obtained for a small fee through reference agencies such as Experian. These will provide business owners with a good idea as to how well the customer manages their own cash flow and whether they have defaulted on payments in the past.
Apply Interest to Late Payments
All companies in the UK have a statutory right to charge interest on late payments. Currently, the rate of interest is set at the Bank of England base rate plus 8%. Companies experiencing problems with late payments are urged by the Federation of Small Businesses to exercise this right, especially for one-off orders. However, before running the risk of alienating regular or high-value customers, it can prove more productive in the long term to draw up a late-payment reminder letter. Often this is all that is required to prompt payment of the invoice.
In cases where payment remains outstanding, a second letter, followed by a letter before action, may be sent out. Legal proceedings can then be commenced for debt collection and enforcement.
Adopt Alternative Methods of Payment
Avoid the common excuses such as ‘invoice not received' and ‘the cheque is in the post' by using online facilities to send and track invoices and payments and move away from accepting cheques and cash.
Using alternative methods, such as FSB Card Payment Processing, can help SMEs carry out credit and debit card payments securely through their website, on the shop floor, over the telephone or using a smartphone or tablet device. For companies that travel around as part of their business, using a FSB Mobile Card Payment Terminal is also an effective solution, enabling fast, safe and secure payment without the need for a telephone line.