Cashflow: My customers always pay late

Getting paid later than you have agreed is both a concern and reality for most businesses that offer credit terms. The good news is there are some small steps you can take to reduce the risk of that happening with either new or existing customers.

1. Talk to customers about how they want to pay

2. Don't assume you have to have a 'one-size-fits-all' approach to payment

Some customers are quite happy to pay immediately, others may prefer to pay by installment or have a period of credit. Speak to your customers to find out what works best for them but make sure that it works for you too before you rush into a commitment.

3. Always run a credit check

If a customer wants a period of credit before they pay, you should always run a credit check. By extending credit to customers you are, in essence, lending them money, so you need to be certain that you'll get it back. Taking this step will help you decide whether to offer them credit and if so how much and over what period.

CREDITFOCUS from Barclays is a new service which gives you online credit checking and monitoring of customers and prospective customers. If one of your customers' credit rating changes, it will also alert you automatically so you can consider taking action.

4. Set individual credit terms and limits

If you’ve run a credit check and decide to offer credit to a customer, think about how much. It’s worth setting credit limits so that you review selling more to customers once they owe you a specific sum of money. Also think about the credit term you want to apply. Would you be more comfortable waiting 30 days, rather than 90 days, for your payment? Make sure you do a forecast to see how different payment terms will affect your cash position.

You should make these decisions for individual customers - think carefully about what the credit check has told you and set different limits and terms based on that information. CREDITFOCUS for example will give you details of your customers' previous payment history/record so that you have a clear guide on how quickly they are likely to pay up.

1. Invoice regularly

It is all too easy to focus on the job and forget the paperwork. Invoicing as soon as work is completed is a must, as is spending time at least once a month chasing up late payments and sending out reminders that payment is about to be due. Keeping on top of your invoices not only means you get paid quicker - it also delivers a professional impression of your business, which can work in your favour.

There are business tools that can help you create and keep track of your invoices, as well as payments received and outstanding, quickly and easily like Barclays Business Manager or Free Seminars

2. Make payment terms clear

Always make sure your invoices are dated and that the amount due and payment terms are clearly stated on them, for example "payment due within 30 days". If you have a contract in place with your customer, include a statement of respective rights and obligations. You can also opt to have some common safeguards worked into your contract that will give you added protection if you and your customers get into a dispute. A solicitor can help you with this. If you’re a Barclays Business customer we can arrange a free session with a local solicitor for you - talk to your Barclays Business Manager.

3. Incentivise early payment

Provided it doesn’t reduce your profit too much, you can offer discounts to customers that pay upfront or early. If you go down this route, document clearly - that if they don’t pay early the discount won’t apply.

4. Continue to credit check for customers

Credit ratings often change and whilst you shouldn’t rely on them alone, rating changes can indicate a change in a business's circumstances. So it is good practice to regularly monitor the credit rating of the people you do business with. If you see a customer's rating change, talk to them about it and consider reviewing their credit limit or terms that you have in place.

CREDITFOCUS from Barclays will automatically monitor the credit rating of the customers you offer credit terms too and instantly alert you if their credit rating changes for the better or worse, so that you can take appropriate action.

1. Talk to your customers

If you have a customer who hasn’t paid, talk to them to find out why. There is likely to be a good reason. This type of situation is common and unfortunate but your first priority is towards your own business so be firm and persist in trying to get paid. Be tough if necessary.

2. Be prepared to take action

The law is on your side and there are things you can do to encourage customers to pay before starting formal legal proceedings.

The Late Payment of Commercial Debts (Interest) Act 1998 came into force in 1998 and gives you the legal right to charge interest of 8% when a business is over 30 days late paying your invoice. You can download a guide to the Late Payment of Commercial Debts (Interest) Act 1998 380 KB ² here.

If this doesn’t result in you getting paid you can start legal proceedings. You generally find that sending a debt recovery solicitor's letter is enough to bring your money in. A solicitor can help with this or CREDITFOCUS from Barclays can issue a solicitor's letter for you.

Occasionally, and after other means have proved unsuccessful, you may need to take them to court. You will need the help of a solicitor for this. As mentioned previously, if you’re a Barclays Business customer we can help arrange a free session with a local solicitor - talk to your Barclays Business Manager.

If your customer is a business, it could be wound up unless you are paid and they could find themselves with a County Court Judgement. This would significantly affect their credit rating. In either case it is in their best interest to make every effort to pay you.

Ensuring you get paid for the work you have done is vital to your business and your cash flow so you need to keep on top of your invoices and the money you are owed. It is time well spent and as you can see there are some great tools available to help make this easier for you.