4 posts tagged “accounts”
Medium to small businesses are at risk of being paid slowly by larger clients. Really bad late payment can even lead to insolvency in the worst cases. It has come to the point that after many years that the chasing of late payment and managing debtors is a day-to-day task for many small businesses.
In an attempt to help businesses overcome the threat of late payment the Government introduced the Late Payment of Commercial Debts (Interest) Act 1998. This gives small firms with 50 or less employees a statutory right to interest for the late payment of commercial debts. This statutory right to interest and other new entitlements are available to all businesses and public sector bodies from 7 August 2002.
You can many things to avoid the dangers of late payment:-
1. The Late Payment of Commercial Debts (Interest) Act 1998 allows small businesses to claim interest on overdue payments from other companies. Originally drawn up to help small businesses claim against larger businesses, the law now extends this rule to claim debt recovery against other small businesses. Even if you did not state a payment period in the initial agreement with a client, the Act states that a payment becomes 'late' after 30 days. You are entitled to claim interest at 8% above the prevailing Bank of England base rate. It is worth quoting the Act on any invoices sent to clients.
2. Clearly many small businesses feel vulnerable in demanding payment from larger companies, this is very understandable. For this reason, it is essential to follow the initial steps mentioned above when doing business with clients. If late payment occurs, always try to politely obtain settlement for overdue invoices before taking further action.
3. If a client has not paid on time, it is essential to follow up on
the invoice. Always try to obtain a point of contact in the accounts
department since this will save time. Politely ask for the payment to
be made and if the problem persists, you can consider charging interest
on the overdue amount, or in the worst case, threaten the late payer
with legal action with Business Debt Collection agencies
4. Clearly print your terms and conditions for payment on any contracts (or order confirmations) signed with an end-client. These terms should clearly state the payment period for any invoice - quite often you would expect payment within 30 days, but this could be shorter or longer depending on your type of business. Company Credit Checks are a way of checking your new customers and existing customers
5. You could offer an early payment discount, or a discount for upfront payment of several installments. For example, you could charge £500 + VAT for a service/product if the amount is settled within your agreed payment period, and £475 + VAT if payment is made within 10 days. This is likely to encourage many clients to pay early, although you will of course make less money on each deal.
There are many ways to use the internet to help combat late payment. One of the newest is a name and shame web site offering membership services.
Tips for getting late payments paid earlier or on time
Don’t listen to the excuses
You already know most of them, “Can you resend the invoice”, “it’s passed
for payment” and ‘the cheque is in the post’. Get invoices paid directly
into your account. Your customer can not themn use the excuse that the cheque
may be lost or that it is waiting for signature. You can also list a late payer on sites which offer business debt collection services, websites which are cheap and cost effective.
Work at it
Don’t think that businesses will pay you on time. You need to build
relationships with people who hold the purse strings in companies which are
slow in paying. Phone them, talk to them, smile on the phone to them, get them
on your side. Be like a rat up a drain pipe and pester them in a nice way.
Before you know it you will be the first to be paid. A phone call in
advance of the payment date confirming that you will receive payment puts your
contact on the spot and he might not want to let you down. Paying direct into
your bank is good, meet with your customers and press them into this
Ask for interest and ask for prompt payment
It is possible and legal to ask for interest on late paid invoices.
Encourage prompt payment, if your pricing allows , hard in today’s climate,
offer a prompt payment discount and link it in with Bacs electronic payment.
You will see a positive cash flow with money going into your account quickly.
Not waiting for money to clear means that you can use it immediately and don’t
have to rely on costly loans.
Do as you ask
Don’t get a bad reputation yourself as a bad payer news travels fast so pay
your suppliers on time.
Is a business a bad risk ?
Check them out through debt recovery companies or associations they may be in, check out Companies
House which can provide reports on line to you. Prevent risk by doing a credit
risk check on all new potential customers. risk by performing a credit
check on all new customers. Beware of companies which give may give
referees which provide a big proportion of their supplies, ask what percentage
they are responsible for. That supplier may be paid on time every month because
not to do so could influence deliveries. Business debt collection is hard, one needs to be tough to make it work.
Internal Cost of Late Payment
Some companies are paying for dedicated staff to chase late payment others are not so fortunate. On average the internal cost for those not able to afford dedicated staff can be up to 20 lost working days per year.
Industry late payment figures have shocked industry observers who fear that late payment is likely to get worse with the rise in interest rates and the economy taking a downturn, factors that make retaining cash for as long as possible even more attractive. This level of late payment comes despite legislation phased in since 1998 that was designed to encourage better payment practice by allowing firms to claim interest on Invoices that were not paid on time.
The UK culture of late payment damages business, employment and international trade.The two main factors agreed by many to be the greatest challenge to business growth is restricted financial lending and late payment. The two go hand in hand. Banks will not lend money so where else can a business be funded ? For many it is the unfortunate supplier and it is the less vigilant or commercially aware supplier which suffers.
This is the point at which companies have to be aware of the other tools available to them. For new accounts a company credit check is essential, whilst these are historical they provide useful information. The use of other methods such as http://www.due2pay.co.uk/ , business debt collection and solicitor’s letters may seem extreme but are essential in this day and age. DUE2PAY’s approach to late payment takes the company credit check to a much needed area. Companies have been wanting a central register of late payers for a long time. With DUE2PAY a company can list a late payer and other members have sight of this information, simple.
Where late payment is traditionally one sided in favour of the late payer, DUE2PAY redresses the balance by giving the late payer the opportunity to flag up a reason for late payment of a specific invoice or invoices. All members have sight of this information and all members can contact the late payer or other members. Court action or solicitor’s letters do not offer this service. Debt recovery has now been taken to a new level with DUE2PAY.
Industry late payment figures have shocked industry observers who fear that late payment is likely to get worse with the rise in interest rates and the economy taking a downturn, factors that make retaining cash for as long as possible even more attractive. This level of late payment comes despite legislation phased in since 1998 that was designed to encourage better payment practice by allowing firms to claim interest on Invoices that were not paid on time.
The UK culture of late payment damages business, employment and international trade.The two main factors agreed by many to be the greatest challenge to business growth is restricted financial lending and late payment. The two go hand in hand. Banks will not lend money so where else can a business be funded ? For many it is the unfortunate supplier and it is the less vigilant or commercially aware supplier which suffers.
This is the point at which companies have to be aware of the other tools available to them. For new accounts a company credit check is essential, whilst these are historical they provide useful information. The use of other methods such as http://www.due2pay.co.uk/ , business debt collection and solicitor’s letters may seem extreme but are essential in this day and age. DUE2PAY’s approach to late payment takes the company credit check to a much needed area. Companies have been wanting a central register of late payers for a long time. With DUE2PAY a company can list a late payer and other members have sight of this information, simple.
Where late payment is traditionally one sided in favour of the late payer, DUE2PAY redresses the balance by giving the late payer the opportunity to flag up a reason for late payment of a specific invoice or invoices. All members have sight of this information and all members can contact the late payer or other members. Court action or solicitor’s letters do not offer this service. Debt recovery has now been taken to a new level with DUE2PAY.
