Last editedFeb 20222 min read
In a perfect world, we’d all pay each other as expediently as possible and cash flows would be both constant and reliable. Because the faster you get paid, the more financially stable your business will be.
Late payments can cripple your flexibility when it comes to hiring new staff, scaling up or investing in marketing. They are also time-consuming and monotonous to chase up for accounting departments.
According to a 2021 global payment timings index which looked at over 40 million payments from over 65,000 businesses, most businesses take between 20 and 30 days to receive payment. But there’s no need to wait that long.
Businesses of all shapes and sizes rely on healthy cash flow to function and a speedy cash flow is a healthy cash flow. Indeed, by reducing the 20–30 days timing window to just 3.6 days, it’s thought businesses could optimise revenue by 86%.
But how can businesses reduce their payments from 30 days to just over three?
1. Expand your payment options
Even in the post-COVID age, there are still plenty of UK businesses that operate on a cash-only basis. This is frankly unacceptable in a landscape that is gradually becoming almost completely cashless. True, accepting cards and digital wallet options will incur a fee but the flexibility it brings to the table is more than worth the extra cost. Utilising these payment options will also dramatically simplify your accounting and billing practices.
By using GoCardless, for example, businesses can use Instant Bank Pay to easily take or make one-off, same-day payments via Paylink or send payment request links, making it even easier to get paid – the customer simply needs to click the link. Note that GoCardless uses direct debit to process payments and while it requires a 3-day cycle to process payments, you can schedule payments in advance and receive recurring payments on a planned monthly date.
2. Bill up-front
While we appreciate that, particularly for small businesses, building a relationship with clients is important, if a client truly values your offering they will have no problem with being billed for it from the offset. Of course, we understand that it might not always be possible or practical to demand payment upfront but doing so would bolster your cash flow substantially.
Whether or not a business can operate with this payment option will depend on the business – its sector, its size and its reputation. But if you can demonstrate that you have labour costs or purchases that need to be made to fulfil and order you could have success with this method. Or you could meet the client halfway and ask for a partial payment upfront to be followed by the rest of the payment once the agreed-upon project is complete.
3. Address late payments
Even with the most efficient payment systems in place there are always going to be some clients that fail to pay you within 30 days. To mitigate the number of late payments don’t allow overdue invoices to stack up. Follow up with your clients and ensure they are aware of the terms of your agreement. If this is your first invoice with the client then this is especially important as it sets a precedent.
You should also work to minimise delinquent payments by establishing a reward and penalty system that chastises late payments and rewards early ones. For example, you could offer a discount to those that pay within three days and lay down late payment fees for those that neglect to pay after 30 days. An automated electronic invoicing system will seriously help with this and might even do a lot of the work for you.
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