9 tools that are helping businesses combat late payment

19/09/2018

As the issue of late payment has grown over the past few years, businesses have been trying plenty of inventive ways to get their invoices paid on time and protect their cash flow.

When combined with advancements in technology and the government’s efforts to help curb the problem, there are a number of useful tools that businesses are commonly using – both as a precautionary measure and to encourage payment from tardy customers.

Here, we take a look at nine tools that are proving particularly beneficial. Which ones could you adopt?

1. Credit reports

Trading on credit terms can be risky business but is often necessary for many companies trading B2B. Particularly when you’re approached by a new customer, do you know how sound they are financially or what their past payment performance is like?

Credit reports give you an instant picture. From the business’s credit rating to whether they have had any County Court Judgments filed against them (which is usually a strong indication they struggle to pay invoices on time), they provide the information you need to decide whether to offer credit terms or demand payment up front.

It is also prudent to routinely credit check your longer term customers, given the current climate means a company’s health can change almost overnight.

2. Government website

Meanwhile, it is possible to review some companies’ payment performance for free on the government website.

Introduced in April last year, the government forces the UK’s largest businesses to report on their payment practices and performance in a bid to increase transparency for suppliers and encourage the worst offenders to clean up their acts.

From the average number of days it takes them to pay invoices to the proportion of payments that were late, each company that meets the defined criteria must report on a number of measures of their payment performance.

To check your customers’ payment habits, search for them here.

3. Statutory compensation

When a customer fails to pay on time, it can come at a significant cost. As well as the knock-on effect it can have on cash flow, which may mean you’re unable to meet your own commitments, there will also be a cost involved in the event you need to outsource its collection to a debt recovery agency.

What many businesses don’t realise is that they may be eligible to charge statutory interest and compensation, which is designed to reimburse the business for the pain caused by late payment. Interest of 8% plus Base Rate can be applied to the invoice from the day it’s overdue as well as compensation of up to £100 depending on the size of the invoice.

Read more here about whether you’re able to charge interest, or use our late payment calculator to see how much you could claim on top of your invoice.

4. Electronic invoicing

Automation seems to be one of the buzzwords of the last few years, helping businesses to improve their efficiency and ease the burden on their staff.

With electronic invoicing (or e-invoicing for short), your invoicing processes can also be automated and bring significant benefits to the business.

In addition to the cost-saving element, sending invoices electronically will speed up the process – meaning customers receive them sooner, disputes can be resolved earlier and the opportunity for some of the most common late payment excuses removed (namely “we haven’t received the invoice”).

This article looks at 10 of the reasons e-invoicing is great for your cash flow.

5. Specialist agencies

When a customer continues to avoid your collections efforts or flatly refuses to pay, it can be tempting to throw more and more time and resource at them in the hope they’ll eventually give in.

However, this can have an adverse impact on the business, as attention moves away from other invoices on the ledger that may also require attention to prevent them from following suit.

That’s why businesses commonly choose to outsource their older and more challenging debts to specialist debt collection agencies. Whilst allowing the business to refocus on the rest of the ledger, the authority and expertise an agency brings improves the likelihood of a fast recovery.

Plus, the statutory interest and compensation you could charge will often negate the success-based fees the agency will charge.

Read how these businesses have benefited from outsourcing their trickier debts.

6. Accounting packages

Accounting software packages such as Sage, QuickBooks and Xero can be very useful tools in helping businesses to manage their sales ledgers.

Using cloud technology, they allow users to securely access and manage accounts while they’re on the move, providing real-time information about the business’s overall finances.

Some packages will even send automated invoice reminders to customers and enable electronic invoicing, with ‘pay now’ options meaning customers can pay online with a debit or credit card straight from the invoice.

With the secret to credit control all about making it as easy as possible for your customers to pay, it’s a tool that’s certainly worth exploring if you do everything manually at the moment.

7. Account opening forms

Many businesses struggle to even get hold of their customer after a payment deadline has been missed, making the credit control process even more difficult.

That’s why account opening forms can be an excellent tool, as the correct information gets gathered and stored at the outset to specifically safeguard your business against this very scenario.

By asking for the business’s details and the contact information for accounts payable – or at least the person who’s responsible for paying – you’ll have the details you need to keep on top of them during the credit period and in the event you need to outsource the debt to a specialist agency.

Here are 8 questions you should ask your customers before accepting their order.

8. Terms & Conditions

Similarly, your Terms & Conditions can be a vital tool both to deter customers from paying late, and to protect your business in the event they fail to pay on time.

They allow you to detail what will happen in the event they don’t pay, and specify a set time period in which disputes, which are a common stalling tactic, can be raised.

By asking the customer to agree to (and sign) them at the start of your relationship, you can then fall back on them should they fail to pay and a debt collection agency is instructed or legal proceedings are commenced.

Not sure what to include? Here are 12 things to cover off in your Terms & Conditions.

9. Your telephone

While some of the tools we’ve covered so far might be new to you, your telephone remains one of the most important apparatus when it comes to combating late payment.

While email reminders and letters have a place, there are certain instances where a good old-fashioned telephone call can have the biggest impact to encourage payment from customers.

For instance, it’s easy for customers to ignore an email or a letter. But many people find it difficult to argue their way out of paying when asked directly why an invoice hasn’t been paid. Even if they can you’ll still gain a reason for the delay and be able to work with the customer to obtain payment.

More than this, you can use telephone calls to build a rapport with your customers. If they like you, it’s less likely they’ll delay payment. This rapport can commence as soon as the invoice is sent; call them to confirm receipt and that everything is as they expected, and use this opportunity to confirm the payment deadline. You’d be amazed the impact this can have.

Take a look at what you should cover in your courtesy call, and the five calls your credit control team should be making to every customer.

If your business is struggling with late payment, we could help. As an award-winning debt collection agency, we help businesses of all sizes to recover aged and disputed debt. Get a debt collection quote or request a call back to discover how we could help you too.