I was recently approached by a director of a wholesale flower company. The company had been trading for over 20 years and had historically made a reasonable profit. With improvements in logistics and accessibility via the internet this resulted in the marketplace becoming inundated with foreign wholesale suppliers which meant that the company’s regular customers switched to cheaper foreign suppliers.
When I was discussing the company’s financial issues with the director, he mentioned that the company had outstanding debtors in excess of £150k. This seemed to be a significant amount of money for this type of business. On reviewing the aged debtors list, it was apparent that some of the debts had been outstanding for significant periods of time, in some cases years. It was no wonder the company was suffering from cash flow problems and facing the risk of becoming insolvent.
Avoid further problems from late payments
Here are a few useful steps that you can take to ensure that cash flow does not become a problem as a result of your customers not paying on time:-
- Ensure that you agree payment terms with your customers at the time that the order is placed and that the terms are agreed in writing.
- Make sure that your payment terms allow you to charge interest on overdue debts.
- Ensure that your payment terms are shown on your invoice to remind customers when payment is due.
- If your customers are not paying on time, ensure that you have a good credit control system in place so that you can start to chase for payment immediately. If your customers are regularly allowed to pay late, it will make it more difficult to start insisting on payment being made on time. Make it clear from the outset that payment will be expected by its due date.
- If payment is overdue and your customer is ignoring your request to bring their account up to date, consider whether it is appropriate to stop supplying the customer with your goods or services. At least this will stop the debt from increasing.
- If your customer is ignoring your written request for payment, try making contact by telephone. Often by having a friendly telephone conversation, you can establish whether there is a problem. It may be that your customer is waiting for payment from one of its customers and therefore that is the reason that they cannot pay you immediately.
- If your customer is experiencing cash flow problems, then agree a sensible payment plan for the debt to be repaid over a period of time.
- If payment is not forthcoming and your written requests or telephone calls are being ignored, consider passing the debt to a specialised commercial debt collection company or solicitor to pursue.
Act now and avoid late paying customers
Do not ignore the problem in the hope that the customer will pay eventually. Taking these few simple steps will help you to keep your finances under control and leave you less exposed to the risk of late payment causing your business cash flow problems. Being able to manage cash flow is key to success in any business. By implementing these steps it will help to create a healthy, positive cash flow for your business going forward.
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