Poor cash flow can be as devastating to a business as poor sales.
As a small business it’s all too easy to let your 30 day payment terms stretch into 40, 50, or beyond 60 days. You find your credit control turns into ‘credit out of control’.
We’ve seen it many times. A really great company, with a great service, always willing to be helpful unfortunately goes under due to cash problems.
We won’t sugar coat it - we know asking for money is hard
It’s a difficult conversation to have.
You love what you do, and you enjoy great relationships with your customers. We get that. Relationships are part of what makes your business so special. You like your customers, and don’t want to upset them. You might feel embarrassed to chase them for unpaid invoices.
All great relationships require boundaries - and as far as you’re concerned, you’ve set them. Your terms quite clearly state 30 days for payment. These boundaries should leave no room for assumptions. They should ensure the relationship is mutually respectful, laying out clear guidelines on what is acceptable and what is not.
So what happens when the boundaries you set have been crossed? When payment is delayed, how do you approach it? Send an email and hope it gets read? Send a statement? Maybe you do nothing and just wait. After all, you’re sure your customer will pay you when they are ready. Right?
The problem is, you have already done the work.
Every time you don’t get paid for the work you’ve done, it starts a chain reaction
Reframe the context of your problem by thinking about how other businesses operate.
Imagine ordering dinner in a restaurant. You make it all the way through your Spaghetti Carbonara and generous glass of wine, and when the server brings you your bill, you decide you’ll pay in a couple of weeks time, get up and leave.
It sounds unacceptable. You can’t really imagine anyone doing it, can you?
If you don’t pay your bill, the restaurant isn't reimbursed for the stock they used to prepare your meal. The staff have spent time they won’t make back. If every table in the restaurant decides to pay on their own terms, electricity bills go unpaid, wages go unaccounted for, debts mount. Families lose their income and find it hard to pay their household bills… and so on, and so on.
The same chain reaction applies to your business when payments terms aren’t met:
- Your customers are late in paying.
- You owe your suppliers money, which you are unable to pay without leaving yourself too short.
- You start ignoring reminders. Your suppliers don’t get paid, so they now can’t pay their suppliers.
- Somewhere along the line mortgage payments can be missed.
- HMRC might start dishing out fines for late payments.
- Opportunities to invest and grow could be lost.
- The business could go under.
- Families could go hungry.
It sounds like a dramatic example, but it’s true and unfortunately it’s one we’ve seen many times before.
Whilst larger businesses may have reserves and access to overdrafts and alternative finance, many smaller businesses and start ups simply don’t have adequate reserves to cope financially if they don’t get paid.
This is why you should place as much emphasis on getting paid on time, as you do on paying your suppliers on time.
How to respond to the immediate issue without upsetting anyone
Effective and concise communication is essential throughout the credit control process. This
is particularly useful if you have to resort to the legal route. In most cases though establishing
a rapport and trust will get matters resolved.
- Make sure the invoice has actually been received by the right person - If the business has seen transitions or structural changes recently, it could simply be the case that the invoice isn’t in the right hands. Check this out before making assumptions.
- Pick up the phone - An email asking for payment is easy to ignore. A phone call isn’t. Don’t be afraid to tell your customer the consequences of them withholding payment.
- Ask for a payment date - This makes it harder for your customer to back out of paying, and if there is a genuine reason that your customer can’t pay straight away, at least you can plan for when the payment is expected.
- Be prepared for excuses - If you know the customer is going to delay payment again because they’re missing invoices, send copies and then call to check they’ve been received.
- But be prepared to be flexible too - You never know what could be going on in someone's life. It might be the case that your customer does want to pay but just can’t manage the full amount due to unforeseen circumstances. They may be able to pay in split payments, and they may want to! Keep this option in your back pocket for situations where you feel a customer is genuinely in need.
We know you’re busy, and chasing debts is probably your least favourite task
It’s okay if it all feels too daunting, especially on top of keeping your business running day to day. For this reason you might want to look at having a third party perform your credit control - someone who will be professional and polite and won’t cause any bad feeling.
At Total Accounting Kent we receive positive feedback from those clients who have chosen to
outsource their credit control to us. We speak to your customers like we would our own and treat them with respect. We won’t upset anyone, but we’ll make sure you get paid because you’ve done the work and you deserve to be paid for it.
Check out our dedicated landing page here to learn about how we carry out our chases on your behalf, whilst making sure you still have full control.
You can get paid faster in the future by implementing the right methods
Of course, we’d love for you to make us your preferred supplier for Credit Control but we also want to share as much as we can to help you create the best systems in your own business.
There will be times when your customer simply can’t afford to pay you, and you may have to
wait until they can, but there are methods you can adopt to be in a better position to get paid on time every time in the future.
We recommend and use a variety of different methods to get paid faster, which have been tried and tested extensively with our own clients. We’ve shared these in an extensive PDF guide you can download below.
Remember, you deserve to get paid.