In the UK, half of all start-ups will fail to survive their first 5 years, and more than 20 per cent will close before their first annual return is due. For SMEs and micro-businesses, cashflow is key, and just one late payment can send your accounts into complete disarray.
European law dictates that all invoices should be paid within 60 days – or 30, if the client is a public organisation. That’s all well and good, but larger businesses still hold all the cards in this arrangement, and if they choose to delay payment, there’s often little you can do.
For every SME, preparation is key, and cash flow is no different. These 3 tactics are proven to improve your chances of getting paid on time.
1. Set Up a Contract
Many SMEs and micro-businesses shy away from paperwork, and struggle to find the time to set up lengthy legal terms. But a simple contract is your best weapon against late payment, and it can ensure your client knows you’re serious about getting paid.
You can specify any payment terms that are suitable for both parties. Providing they are fair, they will stand up in a court of law. If you want to be paid within 14 days, your terms will override EU law, and your client must comply to ensure they don’t get charged late fees and interest.
2. Take Staggered Payments
For many small businesses, waiting for an invoice can stall growth and productivity. It’s better to avoid this by getting payment in pre-planned milestone payments.
The way you approach this will vary depending on your business type, but it’s very typical for a small company to ask for 25 per cent, or 50 per cent, upfront. You can then follow this with a requirement for payment at key milestones in the project.
Staggered payments help in three ways. They ensure your business is getting a steady flow of cash. They help to ensure client commitment. And they also give you the power to pause a project if you aren’t paid at any given milestone.
3. Use Automated Reminders
Many small businesses are reluctant to chase their clients for payment. One poorly-worded email can spell the end of a lucrative contract, so it’s hardly surprising. But you can use automation to take some of the sting out of chases and reminders.
Many of the latest technology accounting tools accommodate pre-written email templates. Optionally these can automatically fire if payment hasn’t arrived by the agreed date. If more sophistication and control is required Credit Control focused routines that can recognise groups, categories or other criteria in addition to credit state can deal globally with progressive and suitable ‘debt collection’ with minimal effort. All good credit control functions should cut back on admin, but even more importantly, make chases less personal and more formal because the automation takes the process out of your hands.
Maintaining a healthy cashflow shouldn’t be an optional extra. Getting paid on time could save your business from catastrophe in a few months’ time. And for cash-strapped, time-pressured entrepreneurs, a little automation can go a long way to ensuring your business runs smoothly.
At OneFit, we’ve seen the benefits of automation and integration, and we understand how to make your business more productive and profitable. Get in touch to find out how our solutions can support the continued growth of your SME.