There was a fascinating and quite terrifying story out today about how a quarter of SMEs in the East Midlands are saying they feel at risk of closure because of continued late payment from their customers.
This issue sits right at the heart of the Survive and Succeed campaign. Just how many companies a year are failing not because their idea was rubbish, or they couldn’t get sales, but because their customers didn’t pay them on time. It’s a scandal.
So I’m wondering are these customers not paying because their cashflow is tight, because they can’t get funding, or just because they’re a habitual late payer hanging on to other people’s money?
The first thing we can do is be a respectful and responsible customer; if you’ve agreed to a suppliers terms then do the right thing and pay them on time, please.
Let’s assume that’s a given because I know you’re one of the good guys, what can you do to get your bills paid on time? There are simple things you can do, but you need to do them consistently if you want to win the “who gets paid” competition.
- As the business owner, you need to see your debtors report every week – keep right on top of who owes you money and don’t let debts build up.
- Always credit check new customers
- Make sure you have a signed contract or terms and conditions with clear payment terms.
- For new customers, get a contact name in their purchase ledger, and if it’s a large company check that they have set you up on the system and who will be dealing with your account.
- Invoice as soon as you supply the goods or services, not at month end.
- Always use their purchase order number (or name the person who placed the order) on your invoice.
- Call your customer a week before the invoice is due, check they have it on their ledger, that it’s been authorised and get a payment date from them, and make sure you note who you spoke to and what they said. Log this in your credit control system (you can use it against them later!)
- Get straight on the phone if they don’t pay you when they said they would, ask for a BACS payment that day as they had promised it, don’t get fobbed off with next month’s payment run.
- Credit control needs to be picked up daily to keep momentum. Once a week is a painfully slow way to progress sticky debts.
- Deal with queries immediately and check they’ve been actioned – don’t let your lack of responsiveness be the reason they don’t pay you.
- Use the phone more than email or letters – build a relationship and get to know them. People pay people they know and like before people they don’t.
- And by the way, sending out monthly statements doesn’t constitute “doing credit control” – most people file them in the bin and don’t see them as a request for payment.
- The old rules of having dragon on credit control don’t really cut it anymore – you need to play nicely with your customers – it’s all about the relationship.
- Write a credit control procedure and make sure Accounts know how to follow it.
- If the customer is really persistent in not paying you, then have a director to director conversation; find out if there’s a problem with your account or something you’ve done, and how can you work together to get your account into terms. Being friendly but firm will get you great results.
I’ve worked in a lot of accounts departments and been in control of many payment runs, and I can tell you the companies who follow these rules DO get paid on time.
If a customer just won’t play ball and their late payment is painful to you then I’d seriously recommend you think about ditching them. Why would you make your business vulnerable for someone who clearly doesn’t appreciate you?