According to the Asset Based Finance Association, the average UK small business is now kept waiting 71 days by customers not paying invoices

If this sounds familiar to you, you are certainly not alone – not that that will be much consolation. The late payment culture, long established in UK business, is tremendously damaging both to the viability of small companies and their longer-term ability to grow.

The best thing you can do to tackle this problem is to take charge of it. You’re the company director and owner. Ultimately, as with everything else, responsibility lies with you.

We know that’s easier said than done though so here is Burton Beavan’s practical guide to getting paid faster.

Sit down and make a list of who owes you money, even if the debt is due or not

Open up your Xero package then create a table in Microsoft Word (or equivalent).

The columns on each table should be:

• Company Name
• Job Description
• Description of job progress
• Amount
• Due Date
• Contact Name
• Contact Telephone
• Contact Email

Populate each cell as described from the information on Xero.

What use is this? First, it tells you exactly how much you’ve got outstanding and who owes you it – it shows you just how much money is coming to you. This is vital business information.

Second, it tells you roughly when you can expect that money. That’s really important as you’ll be able to calculate whether you have a future shortfall in your finances on payments that you’re due to make in this time period.

Start chasing debts or delegate it to someone you trust

Running a business is not easy. There are so many things you have to juggle at once, some of which you can predict and others which come out of the blue.

Besides which, it’s much better if your time is focused on sales generation, order completion, and customer care. That’s why you’re in business – you have a particular expertise in what you do.

So spending time and effort on chasing debts is just about as productive and profitable to your business as ordering in stationary and printing – it has to be done but it’s better if someone else can do it.

Here are Burton Beavan’s five steps to quicker payment

• DEFCON 5) Issue your invoice with clear instructions on the invoice itself and whatever is delivering the invoice (an email or a letter) stating unambiguously when payment is due and who to contact if there is a dispute.
• DEFCON 4) Three days before due date, send a friendly email to your customer reminding them that payment is nearly due, asking them if there is anything further you can help them with and asking if they are happy with the service. You can also get Xero to send out emails three days prior to due date automatically. The point behind this is to find out if there are any disagreements or disputes that could reasonably hold up payment.
• DEFCON 3) For invoices that have just become due, email your contact reminding them that now is the time to make payment. If you do not then receive payment in 3 working days’ time, email them a reminder. Finally, if you have not been paid 7 working days after due date, go to DEFCON 2.
• DEFCON 2) For invoices overdue by 7 working days, chase them up straight away. Get on the phone to your contact and let them know that payment is late. If your contact is not in the accounts department, ask for the name of the person responsible for accounts payable. Either way, get a firm commitment on when the invoice will be paid and email the person straight after showing what they’ve agreed to. If you’ve still not been paid after 21 working days, it’s time to escalate to DEFCON 1.
• DEFCON 1) For invoices overdue by 21 working days or more, it’s serious now. They’ve held onto your money for a long time. You could be using that money to pay staff, your suppliers, or even, heaven forbid, yourself. For this step, you will need the ability to accept debit or credit cards (if you need to do that in a hurry, try Stripe). Phone up the person responsible for making the payment and ask them to pay the full amount by card otherwise their account is on hold. Your fallback position from this is to offer to take 50% of the payment now on the card, getting their agreement that you can take the rest from the same card in 2 weeks’ time. This will allow your customer to continue using your credit facilities.

This won’t solve everything, but it’s a great start

Some customers will run into trouble with cash flow issues of their own. Other customers may not really care whether late payment causes your business distress or not.

No matter, the fact that you’re keeping an eye on what’s due to come in and when it’s due to come in makes a difference to the way you run your business. Chasing hard but fair for your payments makes a difference to the way your customer runs their business – they can’t ignore you.

Keep your chasing friendly, amiable, and personable, even when you’re at DEFCON 1. You won’t lose customers and the strong likelihood is that they’ll mend their ways as time goes on.

Burton Beavan tip – you can get Xero to display all debts on the dashboard so every time you log in, you know what’s coming and what’s due now. You can even get it to send out statements to clients who traditionally quibble over the amount they owe you. Call us to find out how to do this.

Coming up

In the coming weeks, we’ll look at asking customers for deposits and how to get customers to pay on agreed milestones.

In the meantime, any questions you have about chasing payment or about accounting and bookkeeping in general, call your accountant on 01606 333 900 or email us at hello@burtonbeavan.co.uk.