Getting customers to pay sooner
Credit control
Slow payers are a problem and, according to the latest figures, small to medium-sized enterprises (SMEs) suffer more than their larger counterparts. Research by Bacs, the automated payments processing company, shows that while money owed to SMEs has been falling as of January 2015, they had over £32 billion in unpaid debts. If slow payers are a problem for you, there are steps you can take to speed payments up.
Customer types
Firstly, the approach to debt management will differ depending on the way your business operates. For example if you have only a few large customers you need different tactics to a business which has hundreds of small ones.
A few large customers
Where your customer base includes large accounts as well as small, apply the 80/20 rule. That is identify the big customers that account for approximately 20% of your sales. Make an effort to build up a special working relationship with them. It might seem cynical, but business is about making money and it’s been shown that you’re more likely to get paid promptly if you’re on especially good terms with your large customers.
Invoicing rolling supplies
The date on your invoices can be important. If your business involves a rolling supply and so you make, say, monthly invoice runs, date them at the end of one month not at the beginning of the next. This is important because some businesses identify when to pay initially according to the month shown on an invoice.
Invoicing one-off supplies
Where your business involves ad-hoc sales, create a system that generates an invoice on the same day or the one following an event that results in a charge to your customer, i.e. order or delivery, depending on your terms of business. The sooner you bill, the sooner you get paid.
Electronic invoicing
Statistics gathered by accounting organisations show that the average days sales outstanding, i.e. the average amount of money owing to you compared to sales you make, reduces where electronic invoicing is used. Tip. Some bookkeeping software includes an e-invoicing option or allows it to be added as a bolt-on. Alternatively, you can buy separate e-invoicing software (see The next step ).
Invoice style
Make sure your invoices can be identified as such at a glance. Remove unnecessary advertising etc. - you’ve already made the sale so don’t clutter the page. Make clear what you’ve supplied. Just giving an internal part number might mean the invoice is set aside for clarification and consequently payment is delayed. Finally, always show the terms of payment, e.g. 30 days, on the front of your invoices not just in the small print on the back.
Where to find e-invoicing software, visit http://tipsandadvice-business.co.uk/download (CDÂ 16.11.07).
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