Lee Murphy, founder of Pandle, discusses his top tips to avoiding the awkward issue of late payments from customers.
It is an all too common story among plumbers and installation engineers: upon completion of a job to a high standard you send out an invoice only for it to be left unpaid, perhaps for months. While you wait for customers to pay up your own bills start mounting, creating cash-flow problems, frustration and yet more work chasing it.
If you have had experience with late payers, private or commercial, you are not alone. The Federation of Small Businesses estimates that 50,000 small businesses are forced to close every year – such is the effect of unpaid bills.
While there are government and industry-wide initiatives to encourage prompt payments, by getting to grips with your finances, there is much you can do to help yourself. By managing your customers in a deliberate and organised way you can make a significant difference to the health of your company finances.
I’ve drawn up a list of strategies below that will help you encourage customers to pay up and on time.
Keeping on top of who owes you what and when can be challenging if you are not organised or use “old tech” paper and Excel spreadsheets.
Even with the right attitude sending out payment reminders and chasing down late payers becomes time-consuming and soul destroying.
The general rule is the longer you leave a payment before chasing, the less likely you are to be paid. At the very least, have a diary and reminder system with a clear list of what is due and when you will call and chase them.
Better still, automate as much as possible and give the rest to someone else to free up your time.
The good news is there are plenty of online tools available to support you in your efforts, many of which are free. Pandle, for instance, can automate the process of chasing and reminding clients for you.
It’s our experience that most late payments aren’t cynical but down to a lack of organisation. If you get a good reminder system in place and you will be closer to getting your hard-earned cash.
Beware, we have come across self-employed people who only discovered that large invoices had not been paid when their accountant checked their books at the end of the year… nearly a year after payment was due! Make sure this isn’t happening to you.
Be clear about your payment policy
Having a standard payments policy that customers are asked to sign before you start the job will help you should payment problems arise further down the line. It will be the same for everyone, so a standard note on your estimates, or a link to an online page.
If you send a letter of appointment or contract, make sure it is mentioned on this. If you ask customers to sign the document, it is an enforceable contract that you can rely upon should matters take a turn for the worse.
As well as details of what your costs cover, the policy should also inform customers of your payment terms. If you expect to be paid upon completion, make sure your customers are clear on this. You may also want to ask for a deposit up front, so you are not left out of pocket should the job fall through.
Making it easier for customers to pay you will also encourage them to pay on time. Offering mobile payments so that customers can pay with plastic make it easier for private customers to pay while you are still at the job.
For commercial jobs you could offer discounts to those who settle invoices early and penalties for late payers.
Beware your customers!
How long do you allow customers to pay you? If your business is using too many net days – that is the number of days, you wait for payment – then you could be storing up trouble for later.
Reducing your net days will quickly boost your cashflow.
Dealing with larger contractors could be more challenging. Trade body Build UK revealed that of its 24 main contractors, not one paid supply chain invoices within 30 days.
Accepting a larger contract might seem appealing as they can be profitable, but make sure you work out the impact on your cash flow before agreeing to work. Can you afford to wait 66 days for payment and what impact will it have on your ability to move on to the next job?
Most businesses that go insolvent are profitable, they just don’t have the money in the bank to pay the bills. If the payment terms are bad and will put you under pressure, think about whether it is worth the risk.
What if the customer still doesn’t pay?
If you have people who won’t pay, then lots of phone calls and emails are the starting point –and clearly turning up at their house for domestic clients works well.
You will want to refuse any future work until the bill is settled. After that, it is legal channels, which sadly can be slow moving and involve more cost.
Remember to stay professional. You trade on your reputation so being confrontational with customers could be damaging as well as aggravating for you.
Making sure you get paid on time is essential for the success of your business.