In July 2011 the Department of Business published alarming figures that 4,000 UK businesses failed in 2008 as a direct consequence of late payment. More than three quarters of small businesses in the UK have been affected by late payments of commercial debts in 2010-2011. The invoices of UK businesses are paid on average 24.67 days after agreed terms, according to credit rating agency Experian, this isn’t very good. MarketInvoice are aware of this problem and can help high growth businesses release cash against their long payment invoices. Here are few things to consider for SMEs to avoid late payments.
The first thing to do in order to avoid late payment is of course to agree terms. This might be seemingly obvious advice but one must remember to never assume that simply putting “30 days net” onto your invoice as your terms is automatically binding. In legal principle the last set of terms and conditions sent before the contract is finalised takes precedence. You could simply be the last one to send off terms however this might be challenged if a case came to court. The best and safer option is to agree terms clearly in the first place. Be aware that for some industries no paper contract is the norm; an email discharged after a discussion, confirming what is expected and when on both sides, will stand up as a contract if there’s a problem.
Know who to invoice
People need to know who to invoice; it sounds like common sense again but many large companies have structures in place meaning you need to invoice a third party entity. If you get this wrong you could cause a delay in getting paid promptly. With the development of online technology newer ways have been made available for dealing with the payment process. Larger blue chip companies have started to use online vendor portals – a website through which you are supposed to communicate, invoice and query by clicking on links rather than picking up the phone and posting. You need to understand how the portal works and how you engage with it before you invoice.
Include all the information on the invoice
The invoice itself needs to have all the information anyone would need on it. It is important that you make sure your tax calculations such as VAT are accurate. Also include your bank account details and sort code, postal address, company name, PO number, phone number and clearly state your payment terms (and if you charge interest for late payments). Don’t give your customers any excuse to delay payment. For international transactions you can add your bank’s IBAN and SWIFT numbers.
Options to get capital swiftly
Getting money early can be achievable. The already-mentioned MarketInvoice allows people to put their invoices online and get people to bid to ‘pay’ it, or rather issue a loan against it, for a small fee. Many banks offer factoring, essentially a loan against an invoice from a reliable source, and there are other innovations out there. Consult the Next Generation Finance Consortiumfor more information. They represent a new breed of alternative finance companies that can help fund firms at every stage of the business life cycle.
Small businesses need to invoice correctly to avoid late payments
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