How to stop the domino effect of late payers ruining your business

dominoes

Have you ever had a client who just seems to come up with all the reasons under the sun as to why they cannot pay their invoices? Frustrating isn’t it? and often times business owners don’t know where to turn to get help.

Fear not! It is a common problem I have helped my own clients with, especially those more creative, entrepreneurial clients who understandably do not like chasing the money and fear ruining their own client relationships.

So today I thought I would guide you through the cashflow maze … Come on, grab your coffee and let’s get started …

One of THE most common causes of cashflow problems in businesses is late payment!

If a number or even one big customer falls behind there can be far reaching, destructive domino effects right down the supply chain.

The detrimental effect can impact on growth and may even cause redundancies or the closure of your business.

So how can you go about making sure that your business doesn’t succumb to the domino effect?

Firstly it is vital that you are aware of how to prevent or tackle the various different reasons for late payment or a disputed debt. Some clients may well have an “unofficial policy” whereby they pay in their own time and if you don’t like it then to them it’s tough, they’ll move on .. that’s harsh but I’ve seen it happen.

If you don’t want to fall prey to stubborn financial directors, the gate-keepers or the “ahhh they are alright they won’t mind” mindset then the following tips will help you stay firmly in control and keep your cash flowing and your business buoyant:

Research

Rigorously check the name and legal status of each new customer, conduct credit checks and demand references from their existing suppliers before deciding whether they are a good fit for your business.

Other businesses could be paying suppliers late because they have a cash flow problem due to being one of those dominoes hit by another bad payer

However, worries about their reputation and credit references often stop them being completely honest about their difficulties and they may run through a myriad of excuses such as admin problems, staff absences/holidays, IT issues and the old chestnut “payment has been sent – hasn’t it arrived?”

Besides, you wouldn’t want your own business to get a reputation as being a walk over when it comes to obtaining payment would you? So be professional.

Keep Calm

It’s important from the off to remain calm, avoid rushing to sour what could continue to be a profitable relationship for many years to come with immediately threatening to leap to litigation.

Court action is the most expensive route to recovering outstanding payments and is also a very public exercise, which might prompt dispute and counter claim. That aside, it is often unnecessary.

Communicate

Much of the time, the difference between resolution and resentment is effective communication – engaging someone to create a process and implement it to recover the debt for you can be the deciding factor.

Professionals will talk to the debtor, emphasise that they would rather find a discreet solution outside of the courts. Once faced with their involvement and their stated objective, rather than hounding, the customer often opens up – discussing frankly and confidentially issues that they may have been reluctant to provide previously.

Often times a mutually beneficial arrangement is found. This may be that the debtor is given more time to pay or establishing a payment plan that suits both parties.

When Court seems the only option

Once you have got this far and can see no other way of recouping your debt you need to decide if it maybe better business to write off the debt. It boils down to whether the recovery costs justify the amount owed.

Whilst proceedings are a last resort, be prepared! You will need to have access to evidence created by scrupulous record keeping. Put every agreement and amendment in writing and know where you stored them.

Finally the best chance you have of preventing/recovering late payments can be summarised in 3 simple steps:

  • Know your customers
  • Keep a written record of all your dealings
  • Secure the right support when problems occur.

I genuinely hope that the above has helped you to see that panic need not set in, courts are not always necessary and that you can grow and nurture your client relationships without fear of “being taken for a ride”.

Please feel free to share and if you would like further guidance on how I can stop your dominoes falling, email office@coffeenotinc.co.uk we can schedule a time to chat in confidence.