3. Make sure late payments don't turn into bad debt
There are tools available to business owners to make sure late payments don’t turn into bad debt. You’re entitled to be paid for what you’ve done, so a consistent approach coupled with a strict adherence to the agreed credit terms will help you tackle overdue payments straight away and establish if there are any problems.
To keep vital cash inside your business and avoid having to make personal salary sacrifices, try different tactics to see which ones yield the best results.
SEND REMINDERS
As invoices become due send reminders. If payment is late, pick up the phone and have an informal conversation first with the client to understand why it is late. There may be a very simple reason. If there’s no response within two business days, follow up again and if you’re not satisfied with the explanation, request a face-to-face meeting to resolve the issue.
Reach an agreement – You want to be sure that you have a reasonable chance of recovering the debt. Take a diplomatic but firm approach and discuss the situation with your customer. Try to resolve any issues so that you can reach an agreement and explain what steps you intend to take to recover the debt.
RENEGOTIATE PAYMENT TERMS
The last thing you want to do is lose a client. To show that you understand any changes in a client’s circumstances, you can discuss different payment terms for a temporary period.
AMEND INVOICE FREQUENCY
If you’re concerned about a client, consider invoicing weekly rather than monthly. That way, they need to pay you quicker and if they do pay late you can charge a late payment fee on each invoice and reduce the risk.
REMOVE CREDIT TERMS FOR PERSISTENT NON-PAYERS
If you have debtors who persistently pay you late, consider reducing or removing any credit limit that you otherwise agreed with them. You should include your entitlement to do this in your Terms and Conditions from the outset.
PERSISTENT DEBTORS
In the more exceptional cases, you might end up having no choice but to threaten legal action, but this should always be your last resort. If a customer continues to default on the money they owe, and you’re spending more time chasing them than their business is worth, you should consider instructing a lawyer to send your client a letter. If they still refuse to pay, you can take the dispute to court. Generally, small to medium debts will be recovered through the County Courts. Larger claims will be pursued in the High Court.
CASHFLOW FUNDING SUPPORT
There are a range of established business financiers in the UK that provide funding and collection support to SMEs, helping to negate the impacts of late payment. Invoice finance solutions can be used to free up cashflow by releasing existing funds, which are tied up in invoices. As soon as an invoice is issued by the business, the invoice finance provider will release an agreed percentage of the total. This helps to provide a steady flow of cash to small businesses without having to take on further debt.
Overdue payment affects a large number of businesses in the Singapore. This guide aims to provide a practical source of help to enable you to take proactive measures and reduce the risk of late payment. Efficient administration and effective credit management are vital to help you to identify the signs of late payment before any problems arise. The key aspect is to deal with overdue payments quickly and to take action to recover what you are owed as soon as possible.