How To Make Sure You Get Paid

It’s a common experience among business owners: customers or clients who can’t, won’t, or simply don’t pay. If you talk to any SME owner, they’ll likely have a story about someone who didn’t pay them. If they don’t, it’s either because they’re not being entirely truthful or they have an excellent system in place to ensure they get paid on time. Having an effective debtor management system is crucial to avoid tricky financial situations.

Many female business owners are hesitant to talk about money, but it’s time to change that mindset. Instead of focusing on the price you’re charging, consider the value you’re providing. Clients or customers hire you because they need a service or product that they can’t produce themselves. In order to make a profit and maintain healthy cash flow, you need customers who pay you promptly.

Using a good accounting system is key to managing your cash flow effectively. Such systems can track how long it takes for you to get paid and can send automated reminders to clients. This helps you stay on top of your finances and enables you to act quickly if payments are delayed.

Here are a few suggestions to incorporate into your daily business operations when dealing with clients. Since every business is different, select the sections that apply to your situation and integrate them into your system. Remember, just because something isn’t industry standard doesn’t mean it won’t work for you. If your competitors aren’t doing any of the following, that’s their concern, not yours. Your main concern should be the effective management of your business.

Introduce Staged Payments

Create a system with staged payments depending on the job, task, project, or role. Ask for a deposit upfront, which could be 10%, 33%, or 50% of the total cost. Set additional staged payments tied to specific deliverables, with the final payment due upon receipt of the completed work. There are also excellent online payment solutions that can integrate direct debits and recurring payment processing into your business, ensuring payment is made as soon as the invoice is issued.

Decide Credit Terms

You don’t have to adhere to industry-standard credit terms if they don’t work for you. Set your own terms regarding the amount of credit and the number of credit days you offer. If you do offer credit, decide on a limit and stick to it. Don’t hesitate to check your client’s credit history, especially if you’re extending a significant amount of credit. You have the right to do so. When reviewing trade references, pay attention to what’s not being said as well as what is. Remember, this is your business—if you’re offering credit, you’re taking a risk.

Offer an Incentive to Pay on Time

Some businesses find it effective to offer incentives for timely payment. This doesn’t necessarily have to be a discount; it could be a value-added service or product. While this strategy works for some, it may not be suitable for every business. Evaluate whether an incentive could encourage your clients to pay promptly.

Write Down Your Terms and Conditions

Whatever payment options you choose, always have your business credit payment terms in writing. Before signing a contract with a new client, ensure they are aware of your terms and conditions. Setting clear expectations from the start can prevent misunderstandings later.

Have Your Admin in Order

Issue invoices immediately after completing a sale, job, or project. This is when the client is happiest with the work done, making them more likely to pay promptly. Ensure the invoice is accurate—errors in VAT or unit pricing can delay payment as the invoice will need to be reissued. Consider sending a payment reminder before the balance is due; this process can be easily automated with a good accounting system. Regularly monitor your credit limits and take action if a client exceeds them. Depending on your relationship with the client, you may need to put their account on hold. While it’s important to be understanding—everyone faces difficulties at some point—you’re not a bank or a charity. Maintain firm boundaries to protect your business.

What to Do if You Have a Bad Debtor

If a debtor refuses to pay, try to establish contact and have a conversation. Often, issues can be resolved through clear communication. You might agree to staged payments or put the account on hold until full payment is made. However, if the situation escalates and there’s no communication from the debtor, you’ll need to send debt-chasing statements and continue escalating the debt. Don’t ignore the problem and hope it goes away—it won’t. Some individuals rely on you not pursuing them, so it’s important to be proactive.

In summary, ensure you have an effective debtor management system in place. Share and agree on your terms and conditions with your customers in advance, and have them sign off to confirm their understanding. Stay on top of your debtor days, and remember that you’re running a business for a purpose and a profit—don’t let cash flow issues or bad debtors get in the way of that.

If you’d like to discuss your business further, reach out to Angela O’Leary, Owner Manager of AG Associates. AG Associates specialises in affordable accounting and payroll solutions for SME business owners. Our new service, Clarity, combines online bookkeeping with offline accounting to provide an instant snapshot of your business’s current financial health.

For more information, contact Angela at Unit 11, Eastgate Way, Little Island, Cork.  

Phone: 021 4824723