Looking for a resolution for 2019? Improve business cash flow and beat late payments with these 10 tips

As small and medium-sized businesses wake up to 2019, many will be looking at their financial goals for the year ahead.

Plans for growth can quickly be undermined if businesses can’t collect the money they’re owed. Britain’s small businesses are owed a whopping £6.7 billion in overdue invoices, according to Bacs Payment Schemes, the organisation which handles inter-bank transactions. This has soared from £2.6 billion in 2017, with one in three firms now waiting more than two months beyond agreed payment terms to receive their money.

The effects are real – if businesses were paid on time, 50,000 more UK companies would survive every year, the Federation of Small Businesses calculates.

So, with more companies being left out of pocket for longer periods, here are our 10 tips for prompt payment in 2019.

1. Know who you’re dealing with

Before you even start a working relationship with a customer you’ll be invoicing regularly, weigh up how much of a risk they pose. Credit check unknown entities and ask peers or professional networks to discover whether they have a bad reputation for settling debts.

2. Change how you work with customers

Is it possible you might arrange a retainer agreement with a client or become a permanent consultant to them? Such an arrangement guarantees regular income in exchange for being ‘on call’ or for providing an agreed amount of goods or services on a regular basis.

3. Upfront payments

There’s nothing better than getting paid before you’ve even started a task, so think about asking customers for a proportion of the total owed upfront in exchange for a discount. If they can make an ultimate saving by paying, say, 50% on day one, you may be surprised how many clients cooperate.

4. Revisit payment policies

Ensure payment terms are clear from the outset, written into any agreements and explicit on invoices. Also consider renegotiating payment terms, perhaps offering a discount for early settlement of bills or for payment upfront, as mentioned above. More businesses are also cutting their standard payment terms to as little as seven days, though any such move should be discussed with customers beforehand to avoid bad blood.

5. Make paying easy

Many SMBs have moved their accounting to the cloud, but too many still rely on manual invoicing. Cloud-based software allows invoices to be issued automatically, followed up as soon as they’re overdue and easily reconciled by the recipient. Digital invoices typically include a ‘pay now’ button to enable customers to click straight through to settle up immediately. The easier you make it for customers to pay you, the quicker the funds will be in your account.

6. Automate chasing payments

Small businesses don’t have the luxury of large accounting departments to track invoices and late-paying customers. But new technology offers several inexpensive and easy-to-use products to do the hard work. Credit control apps such as Chaser, Satago and Fluidly send reminders about payments automatically before payments are due and then chase outstanding invoices if bills remain unpaid.

7. Prevention is better than cure

The ideal is to make late payment a near impossibility. One way to do this is by automating payments to guarantee on-time bill reconciliation and assured cash flow. Using a ‘pull’ payment mechanism, such as Direct Debit via a provider like GoCardless, means that cash owed is collected from a customer’s bank account automatically. This works even if the sums involved vary from one bill to the next. Funds arrive quickly and reliably and failed payments almost never occur.

8. Have a back-up plan

If you’re left out of pocket, how will you cover day-to-day expenses? Research alternative sources of finance to plug gaps in your cash flow, such as extending the business’s overdraft, taking out affordable short-term loans or using invoice discounting or factoring. Many firms don’t want to resort to these options, but having an emergency plan is sensible to avoid business disruption or, worse still, becoming a late payer yourself.

9. Maintain the human touch

While tech can do a lot to improve payment processes and make cash flow more reliable, don’t neglect the human aspects of business relationships. Cultivate the individuals who handle payments within companies you’re billing. If you have an existing link with the right person, any communication over payments is likely to be more smooth, swift and productive.

10. Once bitten, twice shy

Deal with repeat offenders. Christmas may be the time for goodwill, but start the new year with a clear head and a strict approach to handling rogue customers. If you don’t get paid on time, be wary about continuing to work with the debtor concerned. Also think about adding late payment penalties to contracts to dissuade clients from leaving you waiting for money in future.