Late payments are a wide spread issue that have a significant impact on businesses throughout the UK, with an estimated £44.6 billion owed to UK SMEs in late payments according to research. Construction is one of the worst hit industries in terms of poor payment practices and has the potential to not only damage the impact of a business, but to do so to such an extent that a business risks insolvency.
It is virtually impossible to entirely eliminate the risk of late payment (except to require payment before any work is carried out), however there are a number of things that a business can do to reduce their risk of late payment.
One of the most common excuses for delaying payment is to say that an invoice is incorrect. This could be for any number of reasons, including:
This problem often occurs when manually creating invoices each month, this issue can be overcome by using automated invoicing tools that will take the correct information directly from your accounting software and thus reducing the risk of an incorrect invoice being sent to your customers.
It is often an ingrained practice to send invoices out at a certain time within the month, however we would highly recommend sending an invoice as soon as possible. In doing this, as you have very recently carried out the work, your invoice will be at the forefront of a customer’s mind.
Ensure you keep a record
This can include a number of different aspects; first and foremost, any information with regards to the work you have carried out should be retained, i.e. timesheets, costing sheets, etc. This will ensure that if your customer comes back with a query you have the correct evidence on hand so that it can be resolved quickly and therefore payment can be made.
Secondly, another extremely common excuse used for late payment is ‘I didn’t receive the invoice’, you can overcome this by keeping a record of how an invoice was sent, to whom and when, therefore should a customer say an invoice was never received you can forward across the proof of it being sent, and do not have to allow for more time for payment to be received.
Proactively chase late payments
Chasing for payment as soon as they fall due is essential to showing your customers that you will not accept poor payment practices. Whilst the majority of customers will adhere to payment terms, a select few will push their luck, therefore, proactively chasing for payment is much more likely to spur your customer to pay you, rather than sitting back and waiting for them to do it without a push.
Whilst each of these are very likely to reduce your risk of late payment, all of these aspects can be time consuming. Here at Exchequer Accountancy, we help our contractors to incorporate FreeAgent accountancy software. With FreeAgent contractors are able to very easily input timesheets and invoices, as well as track their cash flow in real time. The software also comes with many added benefits including, automatically sending invoices when work is complete, chasing for payment when an invoice falls due and providing an easy way for customers to pay you.