Bad debt can be problematic for companies of all sizes, but for smaller firms it can make the difference between making a profit or falling into the red. Together SMEs in the UK lose around £134 million each year through uncollected revenue. But how can you avoid getting into this situation?
Of course, bad debt isn't something that can be completely solved, but you can take certain steps that minimize the risk of your company getting to the point where money you are owed is unlikely to actually be paid.
Have clear payment terms
Starting off on the right foot is important as it helps you set a standard between you and your clients. In the paperwork that confirms the work you'll be doing, you need to inform them of when they can expect the work to be delivered, how much it will cost, when they will be invoiced and when payment will be due. You can also add in any fines for late payment. This makes sure that clients understand how seriously you take invoices and should encourage them to pay you on time from the start.
Offer multiple payment options
Making yourself flexible for clients is one of the best ways to make sure you get paid on time. Online transfers are the most popular way for companies to pay invoices, but you may find that some clients prefer more traditional methods, like checks. Offering these different options can have a big impact on whether or not you are paid on time.
Also consider how you will be invoicing companies that are based overseas and make sure you have a clear idea of how this is dealt with.
Set out a process for late payments
Everyone can forget from time to time, and you don't want to risk souring a pleasant working relationship by hitting a client with fines the day after their deadline. Putting a process in place for invoices that are unpaid is a good way for you to prepare yourself for this happening. It may be that you want to send them a reminder the day after payment was due, and ask whether there have been any problems. If it still doesn't get paid, you may want to email them with a reminder of your payment terms and the escalation process for non-payments. It's good to talk to your clients over the phone, but it's also wise to have things in writing in case you need to pursue legal action at any time.
Check your invoices
If you want your clients to pay you promptly, you need to make sure you are making it as easy for them as possible. This means sending out invoices on a pre-agreed date, usually when work has been completed. You also need to check that all the necessary information is on the invoice so there's no reason for your client to not pay the amount as soon as the invoice is delivered.