These are somewhat unique times and many business owners face an uncertain future. However, there are a number of things you can do to minimise the risk of bad debts and to keep your cashflow positive.
Make chasing payments from clients the first task you undertake each day. Don’t just email them, give them a call. Chasing payments can be time-consuming and distracting. It can mean wasting days, if not weeks, of unproductive time. Late payment may be something larger companies practice, but it doesn’t follow that SMEs must simply absorb this, or worse, adopt it. Cultural change comes from individual actions. Put your processes in place to help ensure your cash flow stays positive.
If you have a large number of outstanding invoices you may wish to prioritise which to chase first. The obvious choice may be to chase the largest invoices first but they may also be the hardest to collect. If you chase the smallest invoices first you will see your cashflow improving almost immediately. Before you start chasing check that your invoices have the correct name and address of your customer on them with the correct legal title ie: are they a sole trader, a partnership, a limited company or a limited liability partnership. KYC (Know Your Customer) is an essential part of the credit cycle. If you are unsure about the status of your customers you can check with Companies House (a free service) or a credit reference agency (they normally charge but some are offering free reports at the moment). Also check the amount is correct on the invoice, your bank details are clearly displayed and also ensure your terms and conditions have been issued to your customers. If they say they can’t pay then remind them they are legally obliged to pay you and that if they don’t pay you, you won’t be able to pay your bills either.
This ‘domino effect’ is the same as we had in the last recession in 2008. However, with support from the government and banks we should recover from the current crisis much quicker. If your client can’t pay in full ask them to agree a structured repayment plan with a fixed start and finish date. Once the first instalment has been paid there is an automatic admission of liability for the remaining balance. If a client states they cannot pay anything ask them to prove they cannot pay or even suggest they pay a token sum, even £10.00 is better than nothing and is a gesture of goodwill as well as the aforementioned admission of liability.
Current legislation allows you to add late payment interest and fees to all commercial transactions. The Late Payment of Commercial Debts (Interest) Act 1998 allows you to add 8% interest, fixed fees and reasonable costs of recovery to every invoice you issue. The fixed fees are £40.00 for invoices up to £999.99, £70.00 for invoices up to £9999.99 and £100.00 for invoices £10,000 and above. If they still refuse to pay you can remind them that the County Courts are still open for the issuance of County Court Claims. Small Claims ie: under £10,000 can be issued online in just a few minutes. However, you must stick to the Court’s instructions and timeline of events or you will risk have the Claim struck out. It is always best to get professional advice if you are unsure of how the County Court system works.
Another essential element of managing your cashflow is not just the collection of monies owed to you but also the timely management of payments you owe to your own creditors. You should also prioritise payments to your creditors or they will also start chasing you for payment. Categorise you expenditure into non-essential, good to have in normal times and absolute essential. Non-essential expenditure could be subscriptions, a water dispenser in the office or even the office cleaner. Nice to have could be staff benefits such as gym memberships, free food and drinks. Your staff would probably prefer to have a job with no “freebies” than no job at all. Essential expenditure would be major expenses such as rent, rates and utilities. You could ask your suppliers for a payment holiday whilst the current crisis continues and also for a short time after businesses start to get back to normal as that may take a while before you see in the inflow of new work and payments for work already completed.
The Government has put in place a number of measures to help small businesses survive the current economic crisis but there will be many small businesses that may, for example, have outstanding taxes due to HMRC from before the new measures were put in place. It is therefore essential that small business owners do their utmost to keep up to date with any payment arrangements they have with HMRC as, otherwise, they risk being on the wrong end of enforcement procedures.
To find out more on how to protect your cashflow, please call Premium Collections on 0161 962 4695 or visit premiumcollections.co.uk