Getting your clients to pay on time – Cashflow control basics

Is it the uncertainty around Brexit? Is it the madness of Trump? You might think they'd come top of the list of worries for British SMEs, but in fact our main worry seems to be cashflow, as discovered by the latest C2FO Working Capital Outlook Survey. While economic and political uncertainty are obstacles to growth, they're nowhere near as important as competing emerging markets, contractual uncertainty and cash flow issues.

The Stats

The survey polled over 1800 small business owners across the UK, Germany, France, Italy and the US about what they thought would help their businesses do better, and the findings deliver a fascinating insight into SME priorities and problems.

54% of those polled say cashflow is their biggest barrier to growth. 58% say they find it a challenge to get funding at an interest rate below 8%, up 6% on the previous year. 63% are concerned about how to finance long-term growth, and 76% rely on cashflow to survive and grow. 37% are worried about late payment from customers. And 69% say it'd help if their customers would take part in 'accelerated payment options'.

It looks like cashflow sits at the heart of many a business woe. And late payments are a big issue in Britain. In 2015 11% said customers often pay invoices late, in 2016 it rocketed to 20%. It's no surprise when poor cashflow prevents businesses growing, sometimes from even surviving. At the same time just 14% of UK respondents say they take advantage of supply chain finance, factoring or invoice discounting to improve the flow of working capita – a very low proportion in a climate where early payment schemes can make such a big difference.

Apparently 39% of SMEs say they'd be 'uncomfortable' asking customers for early payment, even when there's a discount in the offing. Perhaps it's a typically British thing, being afraid to talk openly about money. But it's not much good when you're in business. It seems crazy when a simple early payment programme can instantly improve cashflow and, in the longer term, help build stronger business relationships based on mutual respect.

If you're struggling, here are some tips about how to get your customers to pay on time, or even early:

11 tips to encourage timely invoice payment

1.Discuss your payment terms up front when you take on a new customer, or at least put them in an email, getting them to agree that they'll pay your invoices on time – if you make it clear beforehand you might not have to offer an early payment discount at all

2.Always include a payment date or time limit on your invoices – Make it completely clear you want to be paid within 7 days, 14 days, or 30 days so there are no excuses

3.Don't give people the option to pay in 60 or 90 days. It's just too long to wait

4.Put in place basic credit control, where you give people a polite, friendly call or send an equally polite and friendly email the moment an invoice goes past the pay-by date

5.If you have done all this and people are still paying your invoices late, test drive a very simple discount system where early payers get a small percentage discount

6.It's common sense to offer a 1% or 2% discount for paying in full within 7 or 14 days

7.Making the offer in writing by email or on the phone will help bed the concept in with your customers. But also make your discount prominent on the invoice so people will see it – it's your job to market the discount properly so everyone's aware of it

8.Don't offer a bigger discount without carefully doing some sums: bear in mind if your company has a 10% profit margin, giving away a 2% discount means you lose 20% of your profit

9.If necessary, make prompt payment a condition of your contract... and express it big and bold within the document

10.If a repeat offender refuses to pay on time, bite the bullet and use a factoring company to retrieve your money

11.If someone never pays on time, always pays late, are they really worth having as a customer? It's your business, you're in charge and you are perfectly entitled to 'sack' customers if they prove more trouble than they're worth!

If you'd like more help and advice with payment and invoicing, we'll be pleased to help you improve your cashflow.