Late customer payments have long been a challenge for SME’s, but the Covid-19 pandemic has increased this to unmanageable levels for some. According to research by Bibby Financial Services (BFS), 55% of UK SME’s are being paid late due to the Covid-19 pandemic which is significantly hindering economy recovery. Unfortunately, this has resulted in 14% of SMEs needing to turn down new work because they don’t have the cash to buy materials, as their funds are tied up in unpaid invoices. Now more than ever before, it is critical for SMEs to get on top of their credit management. But how?
Tips for credit management
We have compiled some tips to help you stay in control of customer payments and credit management.
1. Know your customers – it may seem counter intuitive to turn work down, but it is important to conduct a credit check on customers and decline work for any who look unlikely to pay their bills on time. Unpaid invoices for several months of work could leave large holes in your finances so it would be better to try to avoid this by saying no to customers with poor credit ratings from the start.
2. Invoice accurately and promptly – always invoice as soon as work is complete rather than waiting until the end of the month, and check who to address the invoice to. This will help avoid unnecessary delays as the invoice is passed around the customer’s business to the correct person.
3. Agree payment terms in writing – establish expectations from the offset and outline clear payment terms before any work is conducted. If the customer suggests a payment term of 90 days for example, it gives you the opportunity to decide whether to proceed with the work or not.
4. Invest in credit management software – a good credit management software, such as the Credit Management Centre in Opera 3 will give you easy-to-understand, real-time graphs displaying your overall financial status so you can see what is owed, who owes it and how much money has been promised by customers. This gives you all the information you need to improve cashflow, reduce bad debt and improve the overall financial position of your business.
5. Discounts for prompt payment – if you can afford to do so, you may consider offering discounts for prompt payment to encourage customers to pay their invoice quickly.
6. Chase, chase, chase – if your customers owe you money then don’t be afraid to ask them for it. Some businesses will take your silence as acceptance for a late payment, so if you want your invoice paying then chase your customers for payment.
7. Maintain good relationships – it goes without saying that you should always strive to maintain good business relationships with your customers. If you have a good rapport with your customers, it’s likely you’ll be one of the first they pay.
8. Take partial payment upfront – depending on the nature of your business, it is becoming popular to request a partial payment upfront for high value goods or services. This will give act as a buffer to your cashflow while you wait for the remaining invoice to paid.
9. Have a diverse customer base – where possible try to ensure you have a diverse customer base. If all your customers are within one industry sector, and that industry slows down, it will have a direct knock on affect to your cashflow. By having a diverse customer base you’re giving yourself some protection for unforeseen circumstances.
10. Send invoices in multiple forms – some customers will prefer traditional paper invoices, and some will prefer email. Cover all bases by sending an email invoice and following it up with a paper copy so there are backup copies if invoices get mislaid.
There are not many businesses that have not been impacted in some form or another from the Covid-19 pandemic, and late payments are beginning to have a more critical impact than ever on SMEs, and the wider economy also. There has never been a more pressing time for businesses to get on top of their credit management to try and stay in control of customer payments and minimise the impact they have on their business. Investing in a robust credit management solution will undoubtedly equip your business with
tools to help protect and futureproof your business, but there are also some other very simple steps outlined in this article that will help too.
For more information about how Pegasus can help improve your cashflow and credit management, contact us today to speak to a member of our team