With the recent disclosure that major companies are recklessly cutting the cashflow to over half of SME’s with tardy payments – there’s a number of measures you can take to minimise the risk.
Regardless of your turnover, your profit, or your invoices, cashflow is the lifeblood for any business. If you haven’t got that £5,000 you’re owed on hand to pay a bill/expense, then it might as well not exist.
Understand your client and payment terms from the off
It may surprise you to learn that the majority of late payments are a result of having not pre-agreed the terms and conditions before the contract was signed.
Sanity check that you’re both on the same level and that the client and you are happy with the dates, there may be a bit of wiggle room here for negotiations depending on whose interest is more valuable.
What you can do, is make sure as a rule of thumb that your contract stipulates as well defined payment margins as you can push for, I.e. I pay within this date by this means, if I miss the payment I have this long to repay.
If a major company pays its invoices at the month end then you should expect your weekly demand to fall on deaf ears.
Have a process in place to ensure the payment is made
When contracting with large companies there’s an increased risk of late payments – unfortunately that’s a reality of the industry, until the Government decides to tighten up the Prompt Payment Code, and it’s something you’ll need to accommodate.
If a payment is missed make sure you’re immediately chasing them up and agreeing a subsequent payment times – although, do bear in mind that showing flexibility with clients is likely to encourage future business.
It’s a good habit to make an informal preliminary check, a week before the expected payment date, to ensure the company is still on task to pay by the agreed date.
As a last resort you can turn to legal warnings followed by legal action – but remember this is likely to sour any future business so only resort to it if it’s unavoidable.
Why might a company pay late?
Any number of reasons can contribute to delays in payment, most of which can be prevented or resolved with a few phone calls – however, in some cases slightly more stringent action is required. Here are a few possible factors.
A misunderstanding on agreed payment terms can be avoided through good communication.
A dispute over the invoiced amount can be avoided by ensuring the terms and conditions are agreed before the services are provided.
Human error is something that’s difficult to account for but can easily be resolved by following up swiftly when you encounter a problem.
Companies in financial trouble will usually require third party help depending on the nature of the difficulties.
The brilliance of the contract financing that Sonovate offers is the ability to ensure all these process are in place behind the scenes and that you have access to regular weekly cashflow so you don’t have to concern yourself with financial dry patches.