Two-thirds of the UK’s biggest construction contractors fail to pay suppliers on time, new research says. Out of the top 100, the report says 66 fail to pay 95% of invoices on time.
We know that it’s important for clients to pay on time. If you have to wait longer than expected it can play havoc with your cash flow.
Cash flow is the movement of money in and out of your business’s accounts. And if it’s all going out, then you may have a problem!
There’s nothing worse than knowing you are waiting for a client to pay outstanding invoices. It is unfair! You have done your work or produced your goods and services, yet you haven’t been paid.
It can be very disheartening but can also make your business difficult to run if you can’t pay your bills.
To help you, we offer seven tips to help you get paid and keep your cash flowing.
1. Invoice in advance
Legal payment terms in the UK are 30 days although you can agree whatever term you wish with your client. But you can always make the case for paying in advance.
If your client isn’t keen on this, you could try to negotiate 50% upfront. Or you could offer a discount for all the payments upfront.
2. Immediate invoice
If you decide to continue with invoicing after delivering your goods or services, then do so as soon as you can. Trades businesses will usually send an invoice immediately after completing a job, so you can too.
In doing so, it is more likely to have a positive impact on the speed of payment. There is a science behind this, called recency bias. In simple terms, you are putting your business at the front of someone’s mind. https://www.investopedia.com/articles/investing/022015/how-cognitive-bias-affects-your-business.asp
3. Be clear
If there are any misunderstandings on your invoice it is likely to get delayed. This is particularly the case if you work with larger organisations.
The person you work with may not be the person in the accounts department. So if there are errors then it will slow payment.
On your invoice make sure you include what work was done and in what time period. Include VAT details if required, bank details, and any other details.
Put your payment terms in bold and you may want to add that unpaid invoices will accrue interest. That is legal, so do it!
4. Be firm
When emailing your invoice reiterate your payment terms. State clearly that you expect to be paid within the stated terms.
If you feel it is difficult to be firm, then consider using a virtual assistant ad hoc to chase payments. But don’t be afraid. You have worked for your payment and you should receive it on time!
5. Be early
Put an alert on your computer or phone that reminds you to chase payments around 10 days ahead of the deadline. It is fine to send a polite reminder. If you leave it until the day itself then you will clearly be paid late.
6. Use software
Software systems such as Quickbooks are a great way to send invoices. They can do this automatically and also have options to send reminders or chase late invoices.
This is a lot easier than doing it yourself or trying to keep tabs on dates. Let’s be honest, you can easily let things slip during busy periods.
There are also solutions for setting up direct debits via the likes of Go Cardless. These take a small percentage of your payment but it means you have control of regular payments.
7. Charge interest
If your payment is late you should make it clear that you will charge interest. You can charge 8% plus the Bank of England base rate for business to business transactions.
Our sincere thanks to Kathryn Barnes of Guidon Group for her contribution to our resource bank.