Being a business owner brings plenty of challenges. As well as outperforming your competitors and making a profit, you need to deal with recruitment, marketing strategies, supply chains, and a host of other issues. They all pose problems of their own, but continually receiving late payments from your clients and customers can have a crippling effect on your enterprise.
It can cause serious cash flow issues and hold you back from fuelling growth, which is why in January 2021 the UK government strengthened the Prompt Payment Code by reducing the required payment period from 60 days to 30. All of which is good news for SME owners, but how else can you protect yourself?
Do your due diligence
Before you take on any new customers, you need to satisfy yourself that they’ll be able to pay you on time. You can do this by requesting credit reports from the likes of TransUnion, Equifax and Experian. Another option is to ask for bank or supplier references to build a clearer picture of their habits and how they handle their business.
Be clear in your terms
When you enter into an agreement or contract with a client or customer, it’s important that you’re explicit in your requirements. There should be no ambiguity as to when you are expecting to be paid, and they should also be made fully aware of the potential penalties they face for missing that deadline.
Explore financial options
In terms of reactive rather than preventative measures, you could always consider invoice financing as a potential solution. If your customers are delayed in making their payments, this is a form of funding that is based on your outstanding invoices. So, it can be a viable way to boost your cash flow while you wait for your clients to settle their debts.
Seek advice
If you’re having problems with late-paying customers, you can turn to bodies like the Small Business Commissioner (SBC) for help and advice on the next steps. Launched in 2017 under the Enterprise Act, the SBC’s purpose is to offer recommendations as to how you can resolve these disputes.
Serve a statutory demand
If you have chased the customer but they have still not made the payment, you can serve a statutory demand on the individual or business in question. This typically only applies to debts that are less than six years old and it should be a last resort but you do not need a lawyer to do so. When they receive the demand, your customer has 21 days to pay or agree to pay.
