As per the Federation of Small Businesses, “Late payments kill 50000 small businesses and cost UK economy around £2.5 billion each year.”  Poor payment practices affect not only businesses or start-ups but also mental well-being and impact productivity and client relationships. You must have received email replies like-

“I never received the invoice mail.”

“I have processed the invoice payment; you will get it soon.”

Whatever the excuse, not paying the invoice is akin to breaking the “code of conduct”.

As per the Credit Procession Association, “ Around 1/3rd of businesses think that pending payments affect the quality of life and dealing with unpaid invoices is stressful.”  Due to this, around 50% of businesses including startups in the UK, face the consequences.

How do delayed payments impact startups’ growth?

Late payments cause severe disruptions in business operations. The disrupted cash at source delays the payrolls that startups release within the due date.

In response, the start-ups cut back on costs and expenditures and reduce employee benefits to pay their salaries on time.

The primary concern here is most businesses do not charge late payment fees to customers despite constant regulations imposed by the government. As per a survey by NerdWallet, “Due to this, around 20% of invoices goes pending until 6 months”. The tenure is sufficient for a business to be near closure.

Most businesses take follow-up after a week of the due pending payment date. Only 40% of SMEs follow up with a call after the payment fails. Due to this, businesses resort to debt-collection agencies or charge interest on delayed payment dates.

So, how do you navigate the cash you owe to your customers?

The blog talks about how to get timely payments from customers.

7 tested solutions to deal with unpaid invoices

In fact, “one must pay within 30 days of the invoice release date.” Businesses can benefit from setting a due date. It helps them get clarity on payments and prepare their finances. Businesses can either exceed the date or keep it the same by interacting with the client.

Here are some ways a startup can mitigate cashflow issues caused by late payments. Here are a few tips to reduce pending invoices:

1) Ensure a streamlined invoice process

If you face delayed payments often, regulate the invoice operation in detail. Keep a tab on invoices that are over 15 days late. Shortlist these invoices and send emails to follow up for a week. However, doing so manually may be time-consuming.

There is ample reliable and legal invoice regulatory software that helps you do the task swiftly. You can do everything from creating a list to shortlisting customers and sending emails. Check external sources like loans if you have pending invoices and limited capital,

Do not back off due to low credit issues. Sometimes, to optimise the operations, you have to do the dues. If you are worried about cash downfall, you can tapstart-up business loans with a bad credit profile. You can use it for any business requirement without worrying about falling credit.

Having a tab over the unpaid invoices and taking action in time can speed up the operations and cash collection.

2) Charge interest on payments due after 15 days

It is imperative to familiarise yourself with the rights of a business owner. Government grants the right to businesses to charge 8% interest on late payments. It will reduce delayed payments and help you ensure a strong payment collection procedure. Talk-out terms in a 1:1 conversation with clients if worried about the impact on client-business relationships.

3) Enforce late fees on the payments

If you do not like charging interest on payments, impose a late payment penalty.  A late payment penalty is a charge that businesses impose on customers if they delay the payment by 30 days.

It is the maximum period within which a customer must clear the invoice payment. If it exceeds 30 days, you can charge a late fee.

Research the ideal fee by reviewing competitors’ policies and charging a reasonable rate. It is also one of the ways to ensure timely payments for your services.  If you are genuine with your services and clients like them, they will be willing to address this concern and act accordingly.

4) Allow multiple and flexible payment methods

If you are in a B2B or B2C business, know your customers well. What is causing late payments? Do your customers struggle to make online payments? If yes, then identify the best solution to eliminate the issue.

Research the popular ways customers like to make payments. The most important aspect to consider while choosing an online payment platform is – security and confidentiality of details. The payment platform should be reliable for customers to pay.

Moreover, provide other ways to make payments like- cash, credit card, or setting up a direct debit. Most customers forget to pay within the due date. They can pay the amount automatically on the due date by setting up a direct debit.

The more payment options, the better. You can choose from payment methods like-

• Cash
• Bitcoin
• Cryptocurrency
• Check
• Mobile payments
• SMS payments

However, you must often choose the best and test them to ensure timely payments.

5) Reward early payment significantly  

Clients who pay in advance are rare to spot. If you have some, keep them by offering discounts on their next purchase.  For example, you can either offer a 10% discount on their invoice or products or services they choose you for.

Set discount rates by analyzing the client’s behaviour, the potential to pay in advance, and the benefit you and the client get from the deal. Avoid offering whopping discounts or too low.

It may affect the business-client relationship. Research your prospects well before implementing new terms. It is important to be realistic.

6) Sign up a contract with the client

It is the best way to get assurance on payment terms. Draft a contract stating the payment terms and mention the date by which a client should make payment.

Apart from that, state the consequences of delaying payments on the agreement. Having clear and upfront terms help both client and the business be in the payment loop.

Add a late payment fee when creating a contract after a few months. For example, if a payment is due for a date, you can charge a 2% late fee on the total invoice amount.

A contract will help you have a straightforward conversation with the client. You can charge late payments legally if any client misses a payment.

While you may do this from next time onwards, how do you connect and meet business obligations before client payments? Startups do not have much money to cater to the urgencies like- inventory management, equipment purchase, cracking client deals, initiating offers for clients, etc.

Around 45% of businesses lack a sound credit history to qualify and even get better terms. But here’s the catch. You can achieve your goals by tapping Start-up business loans with bad credit without worrying about credit and finances. You get the flexibility to get affordable interest rates and share the highest chances of qualifying.

It implies that be it any sensitive business need, you can tap these, backing it with strong finances and even unpaid invoices. Some lenders grant money in exchange for unpaid invoices. You can borrow as per invoice value without any interest.

Bottom line

So, these are some ways to deal with unpaid invoices and ensure a stringent infrastructure. The structure will help you reduce delayed payments and catalyse your business growth. It is important to analyse the competitors and risk assessment before drafting new terms and conditions. Avoid them and ensure a healthy payment collection system.