How to Ensure That You Get Paid on Time in Business

To run a successful business, you need to get paid on time.

Late payments result in business cash flow issues and a whole host of issues for your company. In this article, we’ll look at ways to make sure your UK SME gets paid on time.

Why do businesses need to get paid on time?

As an individual, a late salary payment would result in your scheduled bill payments bouncing. What happens next? Late payment fees, unauthorised overdraft fees, and failed payment charges.

The same applies to business. UK SMES need to have their invoices paid on time for:

  • A stable and predictable cash flow
  • Easier and more accurate financial planning
  • Fewer collection costs
  • Fewer charges and fees
  • Less time wasted on invoice chasing
  • An ability to invest in the business
  • A stronger professional reputation (due to the business’s ability to pay its own bills on time)
  • Stronger client relationships.
  • The chance to build healthy cash reserves.

What is the impact of late payments for UK SMEs?

Late payments aren’t simply a hassle for businesses. They can pose a considerable threat and even lead to insolvency in some cases. This is particularly the case for SMEs, which tend to have a smaller client base.

If one key client drags its feet on a large invoice payment, this can have a disproportionately negative effect on the business inflow.

The knock-on effect is that the company may be unable to pay its own bills (everything from staff and rent to utilities and supplies). This can damage its reputation, necessitate expensive emergency funding, stifle business growth and investment and even lead to insolvency. 

Strategies to make sure your business gets paid on time

With the right strategies, you can help ensure your business is paid on time.

1. Begin with contracts

The starting point for effective invoice management is the contract process. Never enter into work without a robust, signed contract, with a service agreement that outlines the:

  • The project scope and timeline
  • The payment schedule and methods of payment
  • Late payment fees
  • Termination clauses.

Contracts give you legal recourse if the client doesn’t pay. They also make it quicker and easier to pursue legal action. A signed contract is your foundation for all payment systems.

2. Get your invoicing right

With the contract signed and in place, make sure your invoices are correct. Add the agreed payment terms to all invoices, contracts, proposals and client onboarding materials.

Check that the documentation includes all necessary information, as follows:

  • The payment due date (usually 30-90 days from the invoice date).
  • The methods of payment.
  • The invoice number and any related references
  • Information about late payment fees. These are usually set as a monthly accruing interest rate applied to the outstanding balance.
  • Details of the invoicing schedule.
  • A contact for any queries

In practice, this might look something like:

“Invoices are payable within 30 days of the issue date via any one of the methods shown. Late payments will incur a monthly interest fee of 2%. Please quote the invoice number on your payment. For any queries, our contact details are below.”

3. Get better at communicating

An early, friendly call with a client can go a long way. After all, business is all about relationships, and communication lies at the heart of all good relationships!

Train your staff to pick up the phone and regularly engage with clients. If any invoices are likely to be late, good communication will help you to resolve issues before they become entrenched.

Here are some other good communication tips to help ensure you get paid on time in business:

  1. Look at your key account management structure. Ensure nominated leads within your business are regularly reaching out to client contacts as part of the relationship management process. This builds trust.
  2. Share your processes and timelines for invoice payments. Ensure you provide different modes of contact, so queries can be escalated easily to the right person.
  3. Stay professional and calm if invoice payments are delayed. Make early contact to discuss the issue, reinforce payment expectations and discuss the resolution. If you have included late payment fees in your contracts, this is all the easier.
  4. Actively manage late payments and use software to monitor and track contacts, so that late-paying clients are regularly contacted, but in a managed, logical way.
  5. Consider invoice finance to help smooth out issues with late payments, or invoice factoring if you wish to completely hand over your payment collections rather than handle the function in-house.

4. Invest in automated invoice systems

Automated systems keep everyone informed and up to date. They also provide a traceable record of events, whilst saving everyone time and money.

Well-formatted, accurate and timely invoices help to ensure your SME gets paid on time. Invest in professional invoicing software if you don’t already use it, such as QuickBooks, Xero, Wave, Stripe or FreshBooks.

Upload a professional invoice template with your full details, business name and logo, full payment details and fields to populate invoice numbers and itemised services or products.

Schedule invoices to issue to the client with automated reminders. Schedule upcoming payment notifications, due date reminders and overdue alerts. Repeat the alerts daily once the payment is late.

Good practice: Send invoices as soon as they are due. This could be when goods are received, when a project completes or when a milestone is achieved. This will be defined in the contract paperwork. The quicker you can invoice, the earlier you are likely to be paid.

5. Offer multiple ways to pay

An easy way to remove friction in the process is to offer different ways for clients to pay. This makes it easier for them to work within their own systems.

Most UK SMEs will offer popular payment methods such as bank transfers, credit or debit cards, PayPal and Stripe. Some also offer Apple Pay and Google Pay.

Make the mechanisms convenient, and it remove another barrier to prompt payment.

6. Apply late payment penalties

Most UK SMEs ensure they get paid on time by enforcing late payment penalties. This standard business practice acts as an effective deterrent and also provides a financial cushion to mitigate the costs involved with cashing late payments.

To enforce late payment penalties:

  • Clearly state the financial details (flat rate or fee percentage charges) in all relevant paperwork, including invoices and contracts, and when the fees will apply. For example, this could be a 2% monthly charge against outstanding invoice balances after 14 days.
  • Benchmark your penalty structure against accepted industry standards.
  • Enforce the late payment penalty consistently.

7. Offer incentives for early payments

When clients pay early, offer perks or small discounts. An example could be a 3% discount for an invoice paid within seven days of receipt. It could be a free add-on service or entry into a loyalty program.

Think creatively to come up with a win-win situation that offers the client meaningful added-value, whilst supporting your cash flow with timely payments.

8. Consider deposits or upfront payments

There may be times when a deposit or an upfront payment request is appropriate. This could be because the project is large, or because the client is new.

Upfront partial or full payments ensure full commitment from both parties and reduce your business risk. A common structure is half paid up front, and the remaining half upon completion of work.

This approach is used commonly in many industries, and it’s an accepted practice.

9. Choose the right clients

One of the easiest ways to avoid invoice payment issues is to avoid high-risk clients. Develop a thorough screening process to vet potential new clients.

Verify their identity and check their financial background, by looking at government-issued documents, checking company registration details and doing enhanced due diligence for clients flagged as potentially high-risk.

As a general rule, seek to diversify your client base with as many quality clients as possible, to reduce excessive reliance on one client and the risks of non-payment.

10. Use financial and insurance protections

Invoice finance can be a valuable tool for UK SMEs who want to ensure their cash flow isn’t negatively impacted by late payments.

Invoice finance is available in two forms: invoice discounting and invoice factoring. With invoice factoring, also known as debt factoring, you can outsource your entire payment collection process to a third party.

Invoice discounting and invoice factoring offer a number of benefits. The primary benefit is that you effectively sell your sales ledger to a financial provider, and immediately gain around 90% of the invoice value for use within your business, while the invoice clears.

This ensures your business continuity and provides insurance against late payments.

UK SMES can also secure further protections with Trade Credit Insurance and other specialised forms of business insurance against late or non-payment.

How to Ensure Your UK SME Gets Paid On Time: Concluding Thoughts

For a successful, thriving and certain business, it’s vital to get paid on time and maintain a healthy, positive cash flow.

With the right systems and processes, combined with good communication and specialist products such as invoice finance and trade credit insurance, you can build a reliable payment process.

This will free up YOUR time and energy to focus on what matters most – driving your business forward and focusing on its growth. 

Find Out More: Contact ABC Finance

ABC Finance is here to help your UK SME find the right financial products for its needs.

As a family-run and award-winning brokerage, we are here to help our business clients secure the best possible rates on a range of specialist finance products, from invoice finance to asset finance and competitive business loans.

We’re FCA-accredited and voluntary members of the FIBA (The Financial Intermediary and Broker Association) as part of our commitment to the highest possible operating standards. Contact our friendly team today to find out more.