Late payment is still a large-scale problem. It affects many businesses – large and small – throughout the UK. In fact, recent research has shown that almost half of the UK’s SMEs are being paid late, according to Bacs Payment Schemes Limited (Bacs), and that the average late payment debt now stands at £32,185. This begs the question: how can finance teams get paid on time?
Every organisation will have heard the usual late payment excuses, with the most popular reason being that an invoice got lost or never reached finance. While some organisations are making excuses to buy more time, some are simply victims of poor processes.
The problem is that suppliers regularly send invoices to people within the business rather than to the finance team. If they want to be paid quickly, this is not a sensible approach because the budget holder could lose it or forget about it. Here are our top ten tips for cutting through the excuses.
1. Don’t underestimate the importance of credit checks
It is vital to assess a customer’s creditworthiness before supplying them with goods and services. Don’t be afraid to turn away business if your potential supplier has a poor credit history as a handful of poor payers can bankrupt a small company. There are licensed credit reference agencies available as well as online credit check companies. The latter are suitable for even the smallest of companies.
2. Ensure credit limits are authorised and enforced by the relevant people
It is also advisable to enable the electronic authorisation of credit limits by all relevant people internally, such as the managing director, finance director and credit controller. This speeds up the credit limit authorisation process, keeps all the key people in the loop and provides an authorisation trail for future reference.
3. Always be clear about your terms and conditions for payment
Print these terms on the invoice to avoid any potential ambiguity.
4. Request a purchase order number/reference and ensure this is visible on the sales invoice
It is also important to reference the person who authorised the purchase to avoid queries further down the line.
5. Electronically deliver sales invoices and statements
Electronic, rather than postal, delivery ensures customers are in receipt of invoices sooner. There is also a record of when the invoice was received (and read) by the customer so that the finance team can say, “You received it at 9.15am on the last day of the month and opened it at 9.20am.” This bypasses any problems with the postal office and prevents customers from using the excuse that they haven’t received the invoice in order to delay payment. Electronic delivery also frees up staff time spent printing, photocopying and enveloping invoices and statements so that they can focus on chasing late payers.
6. Always provide electronic copies of signed proof of deliveries (PODs) with sales invoices
This will eliminate the all too common excuse “but we never received the goods”.
7. Store all sales invoices, statements, PODs and documents in a secure electronic archive
These documents also need to be instantly accessible from the desktop and linked to the relevant ledgers in the accounting system so that they can be retrieved quickly and no key documents can ever get lost.
8. Provide early payment discounts and late payment charges to incentivise on-time payments
Remember that the Late Payment of Commercial Debts (Interest) Act 1998 allows small businesses with fewer than 50 employees to claim interest on overdue payments from other companies.
9. Introduce flexible payment options
Consider introducing more flexible ways for customers to pay, such as in pre-agreed instalments.
10. Keep in regular contact with debtors
This will help to identify any potential payment issues early on. In the current climate, it is crucial that companies take action to claw back monies owed if they are to avoid insolvency due to late payments like 4,000 firms in 2008 (according to the Federation of Small Businesses). A few simple changes to the credit control process can make a huge impact, ensuring SMEs are around to prosper when the economy recovers.
Essentially, chasing late payments is a laborious and expensive task for every finance team. What’s clear is that organisations are now crying out for an alternative – something that will help them reduce the admin involved in chasing payments and enable them to receive payments more swiftly.
Although the majority of businesses still process invoices manually, more and more are recognising the value of automating their payment processes. So it’s time to bin the excuses and invest in automation. After all, it will transform the finance team, turning it into an invaluable asset.
Dean McGlone is sales director at V1, provider of business automation solutions. He has worked in business process automation industries for over 13 years and is passionate about helping companies drive efficiencies through the use of automation technologies. With a strong channel background, Dean is focused on driving the company’s V1 Select Partner Programme to ensure that it works even closer with its existing partners while creating a strong platform to recruit new partners.
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