Stop the scourge of late payments with Direct Debit
September 15, 2014
Late payments have always been a problem for businesses, particularly small and medium sized enterprises (SMEs). Now new research from Bacs, the organisation behind Direct Debit, suggests this late payment mountain has got bigger than ever, standing at an astonishing £46.1 billion.
Not being paid on time can easily cripple an otherwise healthy business. As Luisa Grey, a director at Eazipay Ltd, the UK’s largest and fastest growing Direct Debit bureau, explains, firms can take steps to increase their chances of receiving the money when it's due.
The current figure of £46.1 billion is an awful lot of money. The average SME is now waiting for £38,186 in overdue payments and no company should have to shoulder that burden. Late payments are corrosive. They attack the very heart of companies - depriving them of essential cash-flow, depriving them of the opportunity to grow and depriving them of investment cash.
Late payments also have other effects. A quarter (25 per cent) of companies are being forced to pay their own suppliers late, with one in five (21 per cent) saying that late payments are forcing them to rely on bank overdrafts, which further increase their costs.
But there are ways companies can help themselves.
Firstly, make sure you have a process in place before you start doing business with any new customer. No matter how big they are, undertake a thorough credit check, including an up to date status report.
And when you do start doing business, don't give them any credit until they have proved themselves to be good payers. Being firm but fair from the very beginning will give you a better chance of being paid on time.
Companies will try and use any and every loophole to wriggle out of paying, so make sure the paperwork is beyond reproach. Confirm the order in writing, make sure it has a number and an invoice number. State the payment terms clearly and perhaps throw in a prompt payment discount.
Always get the invoice out as soon as the work has been completed, and then keep on top of it.
Make contact a week later to confirm that the invoice has been received, that the figures are correct and that it has been logged onto the system. All this helps to avoid the well-known excuse that the client ‘never received the invoice.’
Statements can also help. Sending one out about halfway between the invoice date and the due date reinforces the point.
And build relationships. Make a friend in the accounts department so they know who you are. And if accounts aren't helping, don't be afraid to use your other contacts.
Don't ignore the issue. It's all too easy for a minor late payment problem to become a raging, relationship threatening situation if it's not dealt with early. A gentle phone call and/or reminder letter as soon as the payment is late will often do the trick.
Equally, don't be afraid to ramp up the pressure. Send out a second, slightly stronger letter seven days later and seven days after that post a letter threatening legal action if payment isn’t received in the next week. You could also start asking for interest.
One of the advantages of building up a relationship is that it makes it easier to negotiate. If the customer clearly hasn't got the money at the moment, obtaining a CCJ isn't going to help anyone. Look at options such as staged payments.
If you believe they are messing you around rather than genuinely broke, however, there comes a point where being sociable won’t pay the bills and tough action is required.
One solution which avoids all this unpleasantness is to use Direct Debit. Encourage all existing accounts to move to Direct Debit, insist that all new accounts pay by Direct Debit and introduce a surcharge for all customers who continue to pay by cheque.
Direct Debit has several advantages; not least that it makes cash flow much more reliable. If a payment is missed, the problem is flagged up immediately and action can be taken straight away.
‘The cheque’s in the post’ excuse is also a thing of the past.
And finally, remember that late payment cuts both ways. Always pay your own bills on time.
Top ten tips on how to avoid and deal with late payments
1) Carry out a credit check on any new customer
2) Make sure the paper trail is accurate and complete, right from the start
3) Send out a invoice as soon as the work is complete
4) Contact the client a week after the invoice has been sent to ensure it has arrived
5) Send out a statement midway between the invoice date and the due date
6) Make friends with the client’s accounts department
7) Send out a reminder immediately the invoice is overdue
8) Chase regularly
9) Always try to negotiate rather than going down the legal route
10) Make late payments a thing of the past by:
a) Insisting that all new accounts pay by Direct Debit
b) Converting (over time) all existing accounts to Direct Debits
c) Introducing a surcharge for all customers who continue to pay by cheque.
NOTES TO EDITORS
About Eazipay Ltd
- Established in 2002 by local entrepreneurs Kathy and Ron Bradney, and their colleague, Luisa Grey, Eazipay Ltd is one of the UK’s largest Direct Debit processing companies.
- Eazipay increased its turnover by 20% during 2013 and the company now provides regular Direct Debit services to over 1,202 SMEs and corporate organisations in a wide range of market sectors throughout the UK, Europe and beyond.
- In 2013 Eazipay recorded its best ever year for Direct Debit collections when over £235 million worth of Direct Debits were processed on behalf of its clients.
- Eazipay was awarded ‘Affiliate’ status from Bacs, the governing body for Direct Debit processing in the UK payments industry. The company is now a member of an exclusive group of 55 other Bacs Affiliates, which includes representatives from some of the UK’s leading businesses, banks and building societies, as well as government organisations and banking technology providers.
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