Delayed payments by large corporations and state agencies can put small and medium enterprises under unnecessary pressure, and even go as far as stagnancy and closure. So we’ve decided to share with the ‘little guys’ how to prevent this scenario and ensure you get paid on time.
According to Gerrie van Biljon, Executive Director at Business Partners, a specialist risk finance company for SMEs, this is a troublesome trend. Although this scenarios are South African based, most (if not all) can easily be adapted to any economy or business landscape.
Payment delays can be easily absorbed by larger companies with access to credit, but late payments could have potentially devastating consequences for small firms, which struggle with cash flows and cannot easily secure overdrafts or bridging finance.”
Van Biljon offers five simple steps that SMEs can follow to prevent this scenario:
Negotiate payment terms with customers upfront
Many small businesses are afraid to negotiate strict payment terms upfront, for fear of losing a potentially large customer. Large organisations know this and put pressure on suppliers to accept their often lengthy payment terms.
If there is a difference between the two parties’ payment terms, don’t ignore the issue – discuss it and come to an agreement, otherwise it will arise later when it has become more critical to cash flow”, says van Biljon.
Ensure invoicing is done correctly and timeously.
Before accepting an order, van Biljon advises that the supplier or customer needs to fully understand the company’s credit terms. Requirements regarding invoicing: what references or order numbers should be quoted, what the procedures are for making payment, as well as whether electronic invoicing is a viable option.
Taking swift action on late payment pays off.
Small businesses tend to shy away from pressing large clients for payment for fear of damaging the client relationship. He suggest, “One option is to outsource invoicing and collections to an outside supplier, who is able to chase late payment on the supplier’s behalf…Chasing overdue invoices is an unnecessary distraction from running a business.”
Escalate issues soonest rather than later.
At the first signs of a debt going bad, or if there are implications for other invoices or work already in progress, including the client’s senior staff early in discussions can lead to a speedy resolve. Van Biljon says, “Establish a policy with clients or partners on how long an invoice is allowed to be outstanding before resorting to debt collection and when supply of goods or services would be stopped.”
Use the government late payment option.
SMEs doing business with the government, who are experiencing late payments for more than 30 days, can now call a hotline in South Africa on 0860 766 3729 for assistance. “The hotline will provide SMEs and suppliers with a single point of contact to facilitate the speedy payment for services or products provided to the government”, he says. If you are not in South Africa, you’d have to look up other means of getting in touch with the right offices.
SMEs need not feel powerless when faced with long drawn out payments, as long as they keep these simple steps in mind when doing business.
Source – AR