Bad debt and the problem of late-paying customers is even more of an issue for small businesses than previously thought, an online credit checking firm has claimed.
According to financial management resource e-bcm, small firms are increasingly coming under pressure and the number of business failures is likely to increase unless firms take steps to manage the late payment issue.
A survey in November 2006 revealed that over half of firms with fewer than 20 staff suffer at the hands of late payers, compared to only 29 per cent of larger firms with 20 to 50 employees.
e-bcm believes that the problem is largely down to the fact that smaller firms simply don't have the resources to dedicate to credit management.
Dennis Scott, the company's commercial director, said: "The smaller the business, the less likely it is they will have time to carry out credit checks or chase up debts and we believe that with rising costs and inflationary pressures putting the squeeze on businesses, this year could see many more smaller businesses getting into trouble due to bad or late payers."
Here are some tips for preventing late payments:
- Inform new customers about your credit terms so that they cannot say they were unaware of the deadline.
- Include your payment terms on order acknowledgements, account application forms, invoices and statements.
- Contact outstanding debtors to request payment and politely warn them that you will take legal action against persistent offenders.
- Run a credit check on any new customers to ensure they are in a position to pay on time and do not have a history of late payments.
- Issue invoices as soon as you have provided goods or services. If you don't, your customer will be less inclined to pay you quickly.
- Ensure invoices are correct to prevent any payment delay. Most customers will withhold all payment if a single item on an invoice is incorrect.
- Look into the possibility of invoice finance to help improve your cash flow. This releases capital from your unpaid invoices so that you can still spend the money, even if the debtor hasn't yet paid you.
- Consider taking out insurance against bad debt to cover your business against the risk of late payers.