Getting paid. It’s your fundamental right for goods and services rendered; it’s the basis of our whole way of life and everything which makes doing business possible would collapse without it. Not paying, of course, is simply not acceptable.
Late payment is a more common matter, with its own serious consequences – and it’s one which is of particular concern to small and medium sized enterprises.
Data collected by the credit reference agency Experian for the third quarter of 2011 showed that small firms were paid, on average, 16.45 days beyond the terms agreed in their contracts.
Delays like this have ramifications for the whole supply chain and good, viable businesses can suffer and even fail as a result. But these problems can be overcome – with a bit of good housekeeping, and a little relationship management.
If you want to combat late payment amongst your customers, it’s a good idea to put some simple practices in place to set out exactly what payment terms you’ll be expecting. The Institute of Credit Management, in association with BIS, has produced some straightforward guides which are a good place to start. It’s also worth watching this very helpful film on Business Link.
If a customer knows their obligations to you (and, for example, that they’ll be incurring additional interest on their payment for every day it’s late) they’ll be much more likely to keep their commitments to you.
Of course, there’s a balance to be struck here, and this is where the relationship management aspect comes into play. For example, the company I am chair of developed a big customer in a specific sector of our business who became particularly important. Over time, they started to take longer and longer to pay us, and our sales team were reluctant to push them for payment in case they stopped giving us work. However, in the end we concluded that not getting paid wasn’t an option – so our CEO called their finance director, and made clear that if they couldn’t sort out their payment issues, we would simply stop giving them business. Our CEO and their FD met, and decided that each company was too important to the other for payment issues to sour the relationship; we now get paid on time, and we’re getting more business from this customer than ever – we’re more engaged with them and they understand our business better.
The ‘Getting Paid on Time Day’ taking place today is designed to raise awareness of these issues, as part of the finance fitness at the heart of your company and supporting the Business in You. I’d be interested to hear what experiences you’ve had with late-paying customers, how you’ve addressed them and what more you think can be done. Please leave your responses in the comments below.