10 Tips To Help You Control Your Debtors
Small businesses are more likely to get stung when invoices don't get paid. Here are 10 tips that small businesses can implement easily to prevent bad debts:
* Credit check potential customers – while it is tempting not to check a new customer's credit history, to save time, it is vital to carry out these necessary checks to ensure your customers are able to pay you for your goods or services before you commence any deliveries or work on their behalf
* Terms and conditions – designed to protect your rights, limit your liabilities and provide you with some security, terms and conditions need to be clearly stated on all relevant documentation to both existing and new customers
* Payment terms – these need to be set at the beginning of a relationship with a new customer and followed up with written confirmation which must be signed and returned by your customer before you commence working on their behalf
* Invoice on time – send invoices immediately. If you don't you can't expect to be paid on time. Clearly address the invoice to ensure it reaches the correct person along with information as to when the payment is due
* Crystal clear communication – keeping on top of regular communication with your customers and suppliers is crucial. Ensure you follow up invoices with a call to confirm receipt and advise customers of any outstanding payments
* Keep clear documentation – keeping clear records and having a good filing system will ensure you are aware of payments due and are able to keep track of them more efficiently. Delegate the task of conducting weekly checks on those invoices that are outstanding to a responsible employee and get them to give regular updates so you can spot trends and head off any potential problems
* Understand your rights - if you have a long outstanding payment, consider charging your customer interest. As a small company, the law gives you the right to charge interest on all late payments owed to you. The rate you can charge is the Bank of England base rate, plus 8%, and this should be an incentive for most companies to pay up
* Review credit checking procedures – aim to run credit checks on your existing clients on a bi-annual basis to ensure their financial situation has not changed since you started dealing with them
* Encourage fast payment – encourage your customers to pay on time, offering early payment discounts if they pay within a certain credit period – this shows you care about their business, run a tight ship and are prepared to reward those who deal fairly with you
* Consider the finance options – services such as invoice finance can boost a firm's cash flow by allowing you to raise finance based on the value of your sales invoices - releasing up to 85% of the value of those invoices as they are raised. The invoice financer will also chase outstanding payments on your behalf, and can also offer this service with bad debt protection, protecting your business in the event of a customer's inability to pay or insolvency.
Source: Bibby Financial Services
