For small and medium sized businesses, late payments can become a tricky issue. Unpaid debts can have a severely detrimental impact on a business, especially when those businesses have no formal arrangements in place to ensure timely payments from their clients. Many businesses have folded as a result of late payments, so it’s a problem that shouldn’t be ignored.
The effect of late payments on a business cannot be underestimated; it can lead to a number of business-crippling situations such as having a lack of funds available for investment, not having the funds available to pay suppliers on time and even paying wages. Having a lack of funds available can lead to damaged relationships with supplier, partners, employees and even customers, so it’s important for businesses to minimise late payments. It’s a risky time to be running your own business, so protecting profits and ensuring cash flow is crucial.
One approach is to reward clients who provide prompt payments, with a discount or a gift. This could help encourage happy clients to make timely payments. Unhappy clients who want to negotiate on payments because they are unsatisfied with the products or services received require serious attention, while clients who ask for payment extensions could incur a financial penalty for doing so.
All of this might sound extreme, but if small businesses are to survive they need to think carefully about credit control and how to manage debts. Many businesses are trying to handle credit control problems internally, and finding out that debt collection is a far from pleasant task. A number of businesses use outsourced debt recovery companies to represent them, collect late payments owed and maintain good relationships with customers, suppliers, partners etc.
Many businesses attempt to build good relationships with clients by having an “as and when” agreement in place for payments. While clients might appreciate the flexibility, this sort of policy can result in the type of cash flow problems which can cripple it moving forward. Having a formalised approach to payments will help to mitigate the risks which late payments can pose. It can be hard to get it right, as prompt payments rewards can be to the detriment of overall profit, while charging interest on payments plans can negate the cash flow problems caused by late payments.
Some businesses do not take on new business from a client who has outstanding payments, which makes a lot of sense, but does it make business-sense? Refusing business is normally a no-no for a business, but considering the time and effort spent chasing late payments via email, phone or in person it could work out to be a wise move.
If businesses just want to get on with their normal business without worrying about chasing and collecting late payments, then they should seek a specialist who understands their problems and requirements. Specialist debt collection agencies can investigate late payments before any legal procedures are initiated.
Different agencies will have a different approach to payment, but it’s probably wise to avoid a flat rate or hourly rate of charging, especially if clients are likely to need a lot of chasing. Some debt recovery agencies will offer their services for a percentage of the recovered payments, which incentivises collection. Some agencies will even offer free quotations and a “no result, no charge” promise which should provide re-assurances.
Want to read about Tips for Saving Money?