By Anita Brook FCCA, ACCA practitioners panel member, founder of Accounts Assist
With cash flow an issue for many companies, making sure you get paid on time is essential. Managing your cash flow is an imperative part of keeping your business above water. A big factor in this is making sure invoices are paid on time. Years ago, when times were good, people didn't chase late payment. However, with the downturn in the economy, keeping debts at bay is an important and serious business.
My practice specialises in taxation, bookkeeping, and accountancy services for small businesses and below are some of the suggestions we make to our clients to help them keep on top of their balance sheet:
Don't wait to invoice – send invoices out as soon as a job is complete; there is no rule that says you have to wait until the end of the month. By staggering invoicing in this way, it should encourage a steady stream of funds into your business.
Standing orders – if you have clients that are paying fixed fees, consider setting up standing orders. Accounts Assist does approximately 65% of its business this way, which ensures that a large chunk of revenue definitely appears in our bank account. Setting these up a month in advance also means that you never do work without being paid for it.
Terms and conditions – between 30 and 60 days is the standard amount of time to pay an invoice. However, you are entitled to make your own rules, as long as these are clearly laid out in your terms and conditions.
You are within your rights to charge interest on late payments. This rate can either be included in your terms and conditions, or based on the Reference Rate – the Bank of England's base rate, plus 8% – which is valid for six months.
Request a deposit – by requesting that clients pay a deposit, you are ensuring their commitment to the product or service you're providing. This may not be appropriate for trusted customers, but in the early stages of a business relationship a deposit minimises the risk of no payment at all.
For high-value jobs, with a lot of bought-in costs, a deposit – or a percentage of the job upfront – is an imperative step to keeping cash flow healthy.
Chase late payment – if payment is late then you need to take steps to get this sorted. Deal with each case individually – jumping on the phone to your solicitor might not be the best course of action to start with. Your relationship with a client is important – talk to them first. It may be that they've simply forgotten.
When money is an issue, it is always better to come to an arrangement where funds are paid back in instalments – for the guilty party and for you. At least there will be some cash coming in and getting lawyers involved may be lengthy (and costly).
To encourage prompt payment (depending on the nature of your business) you may want to incentivise – offering discounts, or some other benefit.
Seek advice – if in doubt, ask for help. Seek the advice of your local Business Link adviser, or Community Legal Advice provides free guidance for any legal issue. Your accountant will also be able to make suggestions on how best to improve and maintain cash flow in the first place.