Debtor finance provider Bibby Financial Services urges small and medium sized business owners and managers to make tackling late payment their number one priority in the new financial year.
Small and medium sized businesses are stretched to breaking point by slow payments, with average payment now taking around 57 days, almost double standard trading terms.
Greg Charlwood, Chief Executive of global debtor finance provider Bibby Financial Services said: "Small firms have always been vulnerable to late payments from larger customers - unfortunately it is a fact of business life. However, as the credit crunch continues to bite, a regular and consistent cash flow is critical to the smooth day-to-day running of a business - particularly a smaller one. The vast majority of small firms simply cannot afford to wait on money they are owed without a severe impact on their bottom line, particularly if most of their sales are to a few customers."
To help small businesses combat the issue of late payment, Bibby offers the following new financial year's resolutions on how to speed up the payment process and improve credit control procedures to safeguard cash flow.
Resolution 1 - Always credit check customers
In an ideal world all customers would pay promptly, however in reality this is not the case. The first step to avoiding late payment and bad debts is to always credit check potential customers before handing over goods or delivering a service. This is an accepted and standard business practice and one which shows due diligence on your part.
2 - Get your terms and conditions right
A clear set of terms and conditions can protect you from late or non-payment, limiting your liabilities and providing you with some security. Make sure customers are aware of your 'Ts and Cs' upfront before doing business with them so that every party knows where they stand from the outset.
3 - Reconsider payment terms for repeat offenders
It may be worthwhile considering tightening credit terms for serial late payers. However, before biting the bullet and reducing payment terms and conditions, try to find out why the customer is consistently paying late as you may be able to come to a mutual agreement with them.
4 - Stay on top of payments
Do not delay when sending statements and invoices. If you delay you can't expect to be paid on time. If a client has not paid within the agreed terms, always follow it up. If your customers know you are quick to deal with late payment, they will be less likely to delay or 'forget' to pay. You could also consider a small discount for reliable customers who regularly pay on time.
5 - Invoice often
Consider changing some of your processes to ensure invoices are sent as quickly as possible after delivery or completion of the job. This might mean moving to weekly invoice processing or sending the invoice with the delivery.
6 - Invest time to safeguard cash flow
Maintaining good, consistent cash flow is all about knowing exactly what is coming in and going out. No matter how busy you are, it is essential you look at your cash position every day. This will give you an accurate picture of where the business is going, help identify late payers, control costs and ultimately manage the peaks and troughs in your cash balance.
7 - Keep close to your customers
Get to know your customers better. Understanding the way your customers work and their specific requirements may help to reduce late payments by establishing a good working relationship that will suit all concerned. It is also a good idea to keep an eye on customers' payment trends to spot any potential problems before they become major issues.
8 - Have the right attitude
When faced with a late payer, politely but firmly ask for payment to be made. Never be embarrassed about discussing money with customers - if you have kept your part of the deal and supplied the required goods or services, you have the right to be paid.
9 - Understand your rights
If all else fails, Australian business owners and managers can consider the various means of legal debt recovery for delinquent debts. Bad debts can hit profits and cause significant disruption to business operations. Business owners should be aware of the services available to undertake effective recovery.
10 - Consider more flexible funding arrangements
Work smarter, not harder in 2009/2010 by reviewing your funding to ensure that it continues to meet the needs of your business. While increasing debt may not be on the top of the list for business owners as they battle with slower trading conditions, the use of flexible cash flow products can help resolve the issues brought about by late payment.
Small and medium sized businesses are increasingly turning to more flexible alternatives such as debtor finance which provides a line of credit against the business' debtors.
These facilities help inject cash back into the business by advancing funds of up to 90% against unpaid invoices. They are particularly useful if the business owner cannot or does not wish to secure against real estate. Because the facility is secured against invoices, not real estate, the limits grow in line with sales to better match funding to the business' requirements.
Charlwood concluded: "I would urge all small business owners and managers to make this the year you set 'new financial year resolutions' for their business. There are no two ways about it - despite some general signs of recovery, 2009/2010 is still likely to be a tough year for SMEs.
"Those owners and managers that resolve to successfully manage to reduce the impact of late payment on their business by working smarter and adopting thorough credit control procedures are the ones that will ultimately survive and come out of the downturn stronger than ever before."