Did you know that one in 10 businesses wait two weeks or more before invoicing their customers.
By not issuing invoices promptly businesses are increasing the risk of late payment, as the customer is not going to pay unless they have received an invoice. The sooner the customer is aware of the amount owed and the due date, the sooner they can set the payment process in motion.
In Ireland, as an example, businesses whatever their size, are notoriously late in payment of invoices and this can lead to businesses folding – simply due to poor management of finances.
Developing a strong brand but not being solvent is not a recommended way forward!
By following the following guidelines, you can mitigate against late payment:
Ensure you have your customers’ complete and accurate contact details, especially their correct address and telephone details. Using a standard form when you secure a new client will help ensure you collect all the necessary information.
The invoice is the first part of the collection process and it is essential that it is sent out as soon as possible after confirmation of receipt of goods or services, preferably within 24 hours.
Set invoices out logically and clearly, including the invoice date, description of the goods or services provided, account number, order number, amount due, date by which payment must be made, preferred payment method and the address to which payment should be sent (or account details for BACS).
Always send the invoice to a named individual.
In your contract or terms and conditions ensure you include a statement about your statutory right to charge interest on late payment by including the following wording on all payment material: ‘We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to the agreed credit terms’.
The initial invoice should be followed by reminder letters, emails/faxes, telephone calls and, if necessary, personal visits if payment is late. It is important to make sure that large debts are chased before small debts: working in alphabetical or account number order is dangerous. Track debtor days in your monthly meetings and if you are a small business, consider outsourcing the chasing of payments as you don’t want to mix programme or service delivery messages with debt collection.
Decide which collection methods to use and when – it is important to be consistent and to ensure that the person dealing with the collection process is empowered to speak on behalf of the business, with the knowledge, skills and authority to deal with any account queries or problems.
If a customer genuinely can’t pay, it may be in both your interests to negotiate a settlement, perhaps by introducing a payment plan.
If a customer won’t pay, consider final action, such as passing the debt to a collection agency, pursuing the debt through the County Court, or passing the debt to a solicitor.
The secret of effective collections lies in the systematic and consistent credit management practices that should underpin your relationship with every customer.
Credit vetting, terms of trade, accurate invoices and a good rapport should all form part of the structured approach you take when dealing with your customers. A strategy such as this will go a long way to help you get the prompt payment to which you are entitled.
Source: Leighton Davis, Corporate Mingle (http://ow.ly/18UF5)
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