Small companies are the backbone of UK corporate land and David Cameron, Britain’s Prime Minister, no less, has recently said that he believes that they are crucial in creating jobs, wealth and opportunity. Small businesses are seen as having a key role to play in play in the UK’s economic recovery – more major economic turmoil from continental Europe notwithstanding.
Even so it is still depressingly tough for small companies with a host of problems to overcome and it seems little in the way of real meaningful support from government or the banking sector. For them, it appears, that any kind of business lending is just still too difficult or unattractive.
Moreover, smaller companies are often finding that they are being squeezed financially by larger ones who are effectively using their size and power to dominate smaller companies and use them in effect as a source of finance. According to the Federation of Small Businesses’ statistics as many as 30% of small businesses say they are being paid late on a regular basis.
Whilst there is some legislation around to prevent this (late payment interest etc.) many small companies are reluctant to use these methods as they risk damaging the relationship with their customers.
There are a few practical things that all companies (even the larger ones) should do to help minimize late payments and reduce the pressure that this puts on cash and the ever increasing risk of default.
Firstly make sure that your terms of payment are agreed in writing. See a lawyer if you haven’t already got some well written and legally enforceable Terms & Conditions of sale.
Make sure you have a formal system in place for credit check all your customers. There are many ways to do this with a number of web sites available online, it doesn’t cost very much and it is quite an easy thing to do. This will help you to make informed credit decisions and many of them will tell you if your debtor has a track record for paying people on time.
Try to have a champion at your customer (usually the person buying your goods or services) who can help pressure the finance department if needed and will help smooth out any issues.
Make sure you get your billing right, errors and omissions are the commonest reasons for delayed payment. Don’t provide your debtor with any excuse; check and double check names, addresses, purchase order numbers, prices and all calculations.
Make sure that you or someone in your team calls your debtor well in advance of the invoice falling due for payment to make sure it has been received, is being processed and that there are no problems with it – don’t wait until it is overdue.
Review you overdue debts position regularly (create an aged debtors report) and make sure that all overdue debts are escalated for management intervention.
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