I thought I would write this month’s blog on a subject that seems to concern many small businesses, how to balance growth with prosperity and longevity. As marketers it’s not unusual to come across companies who want to implement a marketing campaign because their current customers are tying up their cash and not releasing invoices for payment. We don’t profess to be experts in this area but we do adopt a fairly rigid method for mitigating risk and we recommend the same to our clients. Up to now it’s worked well for us so please feel free to adopt it for your own sanity.
Here are our top ten tips on what to do.
- New business – It’s always flattering to be recommended and endorsed by a client but remember to bear in mind the phrase that ‘birds of a feather flock together’. So if you’ve a client who doesn’t pay on time, yet expects you to deliver your goods and service promptly, you have to assume that any referrals they make to you are likely to trade in a similar way. This is because there’s a very good chance they already work together and as such adopt an approach that is identical to the one they are exposed to.
So, if you want to attract the best customers, deal with all of them the same way. Set out your trading terms right from the off. If you want to operate 30 days payment it’s unlikely that your clients will have paid your invoice on the nose; so adopt a process that shows clarity and continuity by ensuring statements go out every month on time. If after a short delay your invoice still remains unpaid issue copy invoices and simultaneous confirmation that you are not prepared to maintain supply until full payment has been made.
Of course, in most cases it will either be a genuine oversight or at worst a clients’ short-term attempt at squeezing your finances and easing theirs. But this is not a risk worth taking because before you know it you’ll be owed for a second month before the first has been paid.
- Quoting – What might seem clear to you may not be to the recipient, so have someone else within your organisation check it before releasing it if you don’t have an approved template to stick to. Providing clear and concise quotes should help to avoid any confusion or negotiation later.
- Invoice early – If you can invoice sooner than 30 days do so, as there are no rules to suggest you can’t. You’ll also get a real insight as to how much someone really wants to work with you. If they don’t pay on time then you’ll at least have learnt that they are desperate for your help because others have turned them down or refused credit. Of course it’s great to get clients paying part in advance and part in arrears because you’ll know whether to suspend their services before the new month starts, thus saving you a lot of wasted effort.
- Term & Conditions – make sure you issue Terms & Conditions that are relevant to the service you are supplying and up-to-date as highlighted in this example. ‘The Seller reserves the right to deliver goods of a modified design provided that any difference does not make the goods unsuitable for any purpose the buyer has made known to the seller.’ Ask yourself the question, would you order with this supplier if they could change a design you specified, of course not.
- False promises – If chasing payments is not your primary duty, you may find that you’re reticent about making that telephone call beforehand. If that’s the case it’s likely you’ve already decided what you want to hear before you hear it, and so when you’re told that the Finance Director’s off on long-term sick leave or that they haven’t been paid by their customers, don’t allow yourself to accept this. Remember you’re in business and that’s not a place for soft emotions. Make it clear what your intentions are and when you expect payment to be made by and stick to it as I have come across businesses who have allowed thousands to go unpaid for over a year on the basis of lame excuses before eventually agreeing to play hard ball.
- Correspondence – sounds obvious but you’ll be surprised how many companies fail to confirm everything in writing. Sure, at the outset you’re not thinking this late payment will drag on for some time, so failing to prepare properly is likely to result in you preparing to fail. If you have to go to court over it, you’ll need evidence substantiating your efforts.
- Don’t bluff – you’ll only do it once and your client will see your lame attempt if you don’t follow through with your decisions.
- Ignorance is not bliss – Don’t expect the situation to resolve itself without some intervention. It could be a simple and honest mistake that your client has misfiled your invoice, if so politely email them with a copy of the o/s invoice.
- Staged payments – If it’s a large order it’s likely the customer will expect to have to pay for the job over several phases. Small businesses often refrain from asking for this, but if you are likely to have to pay your suppliers for materials and your staff for their time, you should mitigate this risk wisely.
- Credit Referencing – whilst this is no guarantee because it is only based on past performance, it can act as guide to future performance and integrity. Several methods exist for small businesses to utilise, regardless of whether you have hundreds of customers or just a handful. You’ll find that Dunn & Bradstreet will provide one off reports for as little as £35 or you can purchase annual credits to use, as you wish, which vary dependant on the type of report you require. You can obtain this information by going to https://ask.dnb.co.uk/help/business-information-report/ . Alternatively, you can approach CoCredo http://www.cocredo.co.uk/ or as a member of your local Chamber of Commerce, they will provide reports for free as part of your membership.
Getting your client invoices paid promptly will help you plan for your continued growth; best of luck!