Late payments are costly for business
Even when your business is thriving, it can take just a few unpaid invoices to create significant issues. With our research finding that 32% of Irish SMEs suffered from bad debt last year, we want to give you the best chance of not having to regularly deal with accounts that are in arrears.
While there’s no magic formula to avoid accounts that go into arrears, most payment disputes can be avoided with a clear invoicing process or quickly resolved with a gentle reminder.
"The average amount written off by Irish businesses due to customer non-payment or insolvency stands at €13,780."
Making your payment practices effective
Businesses can't always get paid when they’d like to, but you can take steps to control and minimise your time dealing with bad payers. It's important to be proactive in this area so you limit the impact of late payment when it does happen.
When it comes to payments, there are some simple things you can do to give your business the best chance of not having to deal with bad payers on a regular basis.
Adopting robust invoicing practices will help to ease some of the pressures and reduce the time and money spent on recovering late payments:
- As standard, run credit checks before offering credit terms so you can offer appropriate credit limits
- Clearly state your payment terms and highlight late payment fees that you may charge
- Where appropriate, ask for part payment where your customer pays half the invoice at the onset and the other half at an agreed date
- To identify any potential issues, keep up-to-date records and take steps to resolve as soon as possible
- Send invoices once the job has been completed and have efficient administration processes in place
- Use technology to tighten any existing credit control procedures
- Provide a number of options for customers to make payment, such as direct debit, standing order or credit card
- As soon as an invoice become due, start chasing straight away
Reduce your time managing late payments
You can reduce the time you spend dealing with customers for payment by making sure you have clear Terms and Conditions and effective invoicing techniques.
- Make your Terms and Conditions clear: when you’ve agreed a new order or provision of services, send your Terms and Conditions to your customer for their approval. This doesn’t need to be a long document and the shorter you can make it, the more likely it is to get approved quicker.
- Effective invoicing: regardless of your business size, there is a basic format you should stick to when it comes to invoicing customers. You should clearly state ‘invoice’ and include your contact details, logo, VAT number, an invoice number, the payment due date and preferred payment option.
Don’t let late payments turn into bad debt
Bad debt affects a large number of businesses, irrespective of size or sector. So, to make sure late payments don’t turn into bad debt, we suggest a few ways below that can help you offset the risk of bad debt and tackle overdue payments.
To make sure you keep a healthy level of cash for your business needs, you should:
- Set up a process that sends reminders a week before invoices become due
- Get in touch with your customers to understand why their payment is late
- Come to an agreement that resolves the issue or let them know how you intend to recover the debt
- For a temporary period only, consider renegotiating your payment terms
- Change the frequency of your invoicing to weekly rather than monthly
- Where necessary consider overdue payments fees, which act as a deterrent to late payment
- Reduce credit limits for persistent non-payers or remove credit terms
- Consider funding and collection support with cashflow funding options and bad debt protection, which can help to reduce the impact of late payment