Late payment

Effective credit systems

Don't be shy about discussing how and when you expect to get paid. Follow up these discussions with a letter stating the terms and acknowledge every order in writing and stress the payment terms.

Keep close tabs on your payment process. List accounts in order of size - rather than alphabetically - so that biggest sums take priority. Don't assume that a large client will be the fastest payer: many big corporations pride themselves on the length of time they take to pay. If you can't afford to wait negotiate more favourable terms before you start work and confirm the arrangement in writing.

Invest time in getting to know the person responsible for payments; visit their office and try to get them on your side. They might even give you priority over other suppliers.

Invoices

An efficient system of invoicing will speed up payment. Some companies prepare a post-dated invoice as soon as they accept a piece of work and pin it to a bulletin board as an incentive to finish the project. Whatever your system, make sure payment terms are stated clearly and prominently.

Deliver the invoice as soon as the work is finished and certainly don't wait until the end of the month. An invoice delivered in person is difficult to ignore. If this isn't practical send it by first class post, or courier, and, with very large amounts, phone or fax to confirm that the invoice has arrived in the right department.

Sharpen up your systems

The Better Payment Practice Group recommends keeping an eye out for the following which may mean your systems need an overhaul:

Problem payers

If you're unsure about a company but can't afford to turn them away, look at how to spread the risk. Ask for part of the payment "up front" - for example, twenty per cent before dispatch and the rest 30 days after the work is finished.

You could also cut the credit period from the normal 30 days to one or two weeks, but make sure that accounts that use these terms are monitored regularly. If the customer can't stick to the arrangement consider working on "cash terms only".

A telephone call is usually more effective than a letter when it comes to late payment - especially if you've built up a good working relationship with the person on the other end of the phone.

Use a factor

Finally, you could consider factoring out your invoices. Factoring works as follows: The factor fully manages your sales ledger and provides you with credit control and collection services of all your outstanding debts. The invoices you issue upon a sale are sent to the factor who typically advances up to 80 to 90% of the invoice amount to you. The balance, less charges, is paid when the customer makes payment directly to the factor. The service is disclosed to your customer who typically receives a letter from the factor, or attached note to your invoice, containing payment instructions to the factor.

Funds are typically released to you within 24 hours of issuing the invoice.

Find out more about factoring or get a quote.