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Three steps to resolve late payment cash flow problems

on Wednesday, 15 August 2018. Posted in Funding

Late payments are driving SMEs up the wall. More than that, they’re putting good businesses at risk. Are there any actionable solutions?

Three steps to resolve late payment cash flow problems

If late payments are giving you a headache, you’re not alone. In a survey of more than 500 managers, Dun & Bradstreet found SMEs with a turnover of under £100,000 are owed an average £16,000 in late payments. The figure is even worse for SMEs with a turnover of more than £100,000, with the amount standing at £34,000.

Late payments can lead to serious cash flow issues, putting businesses at risk. If you’re experiencing the same, consider taking these three steps to resolve your late payment woes.

(1) Credit check new clients

Be watchful of below average business credit scores as they can indicate that a client might not pay you on time or at all. In fact, if you were to take the credit profile of your average late paying client, we’d bet on it being well below average.

A poor business credit profile can be because of a history of late payments or even something as serious as having a county court judgment against them. Neither option bode well for you getting paid.

While knowing the creditworthiness of a client is no guarantee you’ll get paid in a timely manner, it pays to vet new clients before you work with them by accessing their credit score because it offers assurance they’re running a good operation. The best way to get started is with Experian, the consumer credit reporting agency, as they have all the credit data you need.

(2) Make it easy for clients to pay you

Many late payment scenarios can be avoided by simplifying the payment process. If you send electronic invoices out to your clients – such as in a PDF or Word document format –adding a payment gateway to your invoices such as PayPal or Stripe makes paying much easier. All you’ve to do is include a link to the payment system which’ll open a payment page when clicked. Your clients can then pay by card or with their PayPal or Stripe balance. It’s much easier than paying by BACS.

Speaking of BACS, most businesses accept this payment method because it’s free and instant. However, not all businesses have access to digital banking or a card reader to add new payees to their system. There’s no workaround to this, so make sure your invoices are clear in their payment terms and how to pay.

(3) Keep cash in the bank to avoid that sinking feeling

Look, let’s get real – late payments happen. No matter how diligent you’re managing your invoices, people screw up. There’s nothing you can do about that but there is something you can do about the effect it has on your business.

What we’re talking about is maintaining positive cash flow. Positive cash flow is two things to a business. Firstly, it’s cash in the bank, think of this as a contingency, and, secondly, it’s making sure more money is coming in than going out.

Businesses with little cash can take out a business loan to bolster their bank account. Borrowing £10,000 over five years doesn’t cost too much with interest rates being as low as they are right now and it puts cash in the bank immediately.

And as for making sure more money comes in than goes out? You can cut costs and unnecessary waste. Streamlining your business costs absolutely nothing and it’s one of the soundest long-term strategies to healthy, positive cash flow.

This article comes courtesy of Nationwide Corporate Finance, the business finance experts.

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