Companies who don’t manage their cash-flow effectively often find themselves in financial difficulty quite quickly & non-payment of invoices can be a significant contributing factor to this.
Although it’s the customer’s responsibility to pay the invoice, there are four basic processes that you need to make sure you’re employing that will help you to avoid non-payment.
If you’re planning to offer the customer credit or aren’t going to take payment until the work is complete, carry out a credit check before you go any further as this will help you to understand who you are dealing with. With the information you will get from this, you will be able to set an appropriate credit limit for each customer. Only offer as much credit as you are willing to risk and never allow them to exceed their credit limit.
Credit checking is a simple and inexpensive step, it really should be something that every business does as it can save both time and money in the long term.
If you work with quotations rather than formal contracts you still need to make sure that you include all of the correct information to avoid problems when requesting payment.
You must include:
- Name and Address
- All work you intend to carry out
- If the quote includes things like removal of rubbish from the site
- Goods that you will supply
- Time frame
- Payment terms
If you’re asked to carry out extra work, always provide an updated quote and NEVER carry out work that you think needs doing without first providing and agreeing a quote with the customer.
Sole traders and small companies in the construction trades have a slight tendency to leave invoicing for a number of weeks or even months following the completion of work. Don’t do this! Always invoice straight after the work has finished to avoid delays in getting paid. Remember, standard payment terms are 30 days but can be much more so if you delay sending out your invoice, it may take several months to get paid for the work you have done.
The 6 Steps of Credit Control
- Several days before the invoice becomes due send an email or make a phone call to check that the customer has received the invoice.
- 7 days after the initial contect send a polite letter reminding the customer that payment is now overdue and set a new date for the payment to be made by.
- If payment has still not been received send a second letter making the customer aware that late payment charges may be added to the invoice if it is not settled imminently.
- Once steps 1-3 have elapsed send a strongly worded letter requesting immediate payment as the customer has now had ample opportunity to pay.
- A strongly worded letter is then sent to the customer with the accrued late payment interest added to the invoice.
- A final demand letter should now be sent informing them that if the account is not settled by a new date the matter will be passed to a solicitor or debt collection agency.
If you follow these steps you’ll be in the best position possible when requesting payment from customers and if they avoid paying, you’ll have a solid base from which you can take the matter further.
Speak to someone today about your credit control and debt recovery needs to help you get your cash flow back on the right path.