For any small business, particularly those that provide a service, getting paid by the customer can sometimes be a challenge. Nowhere does this happen more than in the construction and building sector, as many of our clients at VW often remind us.
If you’ve just decorated a room or built an extension and you’re now waiting for the customer to pay up, you’re not alone. The trouble is many small businesses and sole traders rely on the flow of regular capital. In severe circumstances, not getting paid can impact on moving to your next job or client.
The customer isn’t always a homeowner. Private and public companies alike can have poor payment records. According to government statistics, 90% of people supplying services to the public sector such as councils have suffered a delay in payment.
So, if you’re a sole trader or small business, how can you make sure that you get paid more promptly by your customers?
Here are our top tips:
1. Payment Up Front and Early Invoicing
One tip is to ask for some form of payment up front. This is what a lot of builders will do sometimes to cover the cost of materials but also to make sure their customer is serious about the work being done.
A lot depends on what sector you are in and the attitude of your customer to whether you should be paid on time or not. You might like to give them your final invoice in advance of finishing the work but this can cause bad feelings if you don’t handle it properly.
If you are asking for regular payments or payment up front, it’s always wise to discuss this with the customer before you actually get started on the work.
2. Invoice Immediately the Job Is Complete
If you aren’t comfortable with our first tip, you certainly need to ensure that you invoice as soon as the job is completed to the customer’s satisfaction. There is some evidence that this results in speeding up the payment process. Try handing over the invoice in person rather than mailing it in – you may find that the customer will issue a cheque or card payment right there and then.
3. Invoice Clearly
One thing you should do is make your invoice as easy to understand as possible. Print rather than write something out and include vital details such as your contact details and phone number, VAT number and a brief mention of the terms of settlement.
- Giving people a number of different ways to pay can also make a big difference. If you haven’t yet gone digital, it might be a good time to do so.
- Include a clear breakdown of the work carried out and what it has cost so that the customer doesn’t have course to come back to you and query the invoice, further delaying things.
4. Chase Up Before the End of Your Deadline
Don’t wait until the deadline has passed to give your customer a reminder. They may have genuine reasons for delaying or they might just be putting things off.
If you’ve given them a month to pay then sending a gentle but carefully worded reminder five or six days before the due date is perfectly acceptable. It may not stop them being late but it could just speed things up a little.
5. Being Firm
There may come a point where you begin to think the customer is taking advantage and much will depend on your level of patience. If you feel that things are being dragged out unnecessarily, be firm. State you expect to be paid within the terms of the agreement.
If you have difficulty really pushing to get paid, it may be a good idea to outsource the collection to someone who can do it for you. There are some handy virtual assistants, people who work remotely, who may be able to chase a late payer up for you and they generally offer pretty reasonable rates.
6. Going Digital
Swapping your business onto a digital accounting or payment processing programme can make a big difference. Not only does it give you more ways to accept payments, it can handle automatic processes such as sending out reminder notices.
7. Charge Interest
If the customer has gone past the payment due date, you may want to start adding interest. This potential needs to be made clear from the moment that you issue the invoice. It’s something you need to add onto the paperwork so that the customer is clear on the consequences of non-payment.
If your customer is another business, you can charge 8% plus the Bank of England’s base rate for B2B transactions.
All businesses at some point have a problem with customers settling their bill and there may well be genuine reasons. The above tips won’t totally solve the problem. This advice will ensure that you are on top of outstanding invoices and have a policy in place for collecting the money due to you.