For a lot of businesses cash flow can be an issue and never has it been more important to keep a handle on your cash than now. The pandemic has seen a lot of companies struggling to maintain a healthy balance sheet as debtors fail to pay their invoices on time. Worse still, some debtors are defaulting entirely or going into administration leading to companies writing off debts and taking a hit on profits.
So how can you keep a handle on the money that’s owed to you and avoid being in a cash flow crisis of your own?
Here we look at four tips to help you manage those late payers.
Chasing debtors can be a pain in the backside. No-one likes having awkward conversations about money and if a client hasn’t paid on time it is easy to let it slide.
But not chasing debts is the worst thing we can do.
If an invoice is outstanding when the payment terms are up it’s probably because either it has been forgotten or your client can’t pay it. Whatever the reason is, not chasing the debt in the first place isn’t going to get it paid any faster.
So keep an eye on your debtors and send a reminder as soon as the debt is overdue. A simple email reminder should be enough to get those invoices that have been forgotten paid. And if your client can’t pay then it as least gets the conversation started.
Pick up the phone
If you don’t have any luck with sending an email reminder, then it may be worth following up with another shortly afterward to check whether they are receiving your emails and if there is anything holding up the payment of the invoice.
But if emailing isn’t working then it’s time to pick up the phone. I know emails are a great way of chasing someone without it feeling too personal, but talking to someone directly is often the best way to solve a problem.
I know that once I start working I can happily ignore that horrible job and I’ve wasted another day. So I make sure that I do this first thing in the morning. You’ll spend the rest of your day marvelling at how good you were to get it done.
Set The Right Tone
Chasing late payments is not a fun job but it doesn’t need to be confrontational either. The problem often comes when a conversation hasn’t been entered into soon enough.
Few people want to create grievances with their suppliers or customers so getting the tone right in your conversations with clients is important.
An assertive approach without being aggressive is the right way to go to get the situation resolved as quickly as possible.
Make a plan
If a client isn’t paying after being chased it’s important to have a backup plan - just continuing to chase them may not help. Have a set procedure for escalating late payments - what that looks like may differ from business to business.
If a client is struggling to pay you it’s likely they have a bunch of other debts hanging over them too and if it’s a big invoice it will probably be pushed to the back of the queue when money is tight. It may be helpful to suggest a larger invoice is paid over a series of smaller weekly or monthly payments to help your client manage their own cash.
If you perform regular work for a client and invoices aren’t being paid, then it may be appropriate to stop working until they are able to settle some of their debt.
If all else fails it is worth looking at your legal options for recovering the debt though obviously this is a last resort and it is unlikely you would work with that client again in the future so careful consideration should be given to this before you take any action.
Although chasing debts is not a job most people want to do, it’s pretty important if you don’t want your business to go to the ground. Not getting paid for work is a luxury few businesses can afford right now.
But whilst it may not be your favourite part of running a business, having a set process and adopting a few simple rules can make it a whole lot nicer and get those debts paid quicker.
Need more help? Check out our financial management packages to see how we can help you keep control of your finances: