Ten ways to deal with late payments – advice from KPMG

Phil Charles, head of KPMG Enterprise in Scotland
“For entrepreneurs working all hours to grow their business and innovate, the issue of late payment is an ongoing ‘Catch 22’”, says Phil Charles, head of KPMG Enterprise in Scotland.
“They need their customers to give them more orders and don’t want to harass them – but they need their cash as well, to survive.
“The answer is to focus on ensuring systems help to manage this risk, communicate regularly with your customers and don’t let them get used to paying late.”
Here are his top 10 tips on dealing with late payments:
  1. Prevention is better than cure, so make sure your customer is credit-worthy, no matter how delighted you are for their first order, and consider insurance. This can be expensive, but getting a quote from a credit insurer can reveal which customers are at risk.
  2.  Agree terms up front and get the first invoice paid on time – slack credit control on your first invoice sends the wrong signs to the customer.
  3. Make it clear you will apply the European Directive on late payment which allows you to claim interest.
  4. Make sure your ‘all monies’ retention of title claim is on your orders, so if the worst happens, you can retrieve your product quickly.
  5. Do month end reconciliations to the debtors profit and loss balance for high value debtors. This will identify queries before the payment date, helping to avoid unexpected cash-flow issues.
  6. Advance of payment date actions include contacting the debtor to check all is well and to seek email confirmation of the payment date and the value/remittance. This will help identify any unexpected issues and offsets. Additionally an e-mail system for sending invoices for all sales on a daily basis cold be set up to eliminate the excuse of missing invoices.
  7. Including in standard terms and conditions of sale a clause for charging for copy proofs of delivery can help eliminate this issue and reason for non-payment.
  8. OK, so you’ve done all the above, but you’ve still got a late payer. Talk to your customer to determine why. Good communication is key. Sometimes there’s a dissatisfaction issue that has not been communicated or resolved. If so, deal with it immediately then chase.
  9. Get a promise of a date for payment- so if they miss it you can increase the pressure justifiably.
  10. If all else fails have the CEO ring the debtor’s CEO. In the SME markets CEOs know or simply respond to CEOs.  You’d be surprised how often this works.

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