SMEs up and down the country are regularly dealing with late payments. According to a September 2021 study by Pay.UK and the Chartered Institute of Credit Management (CICM) more than half of Britain’s small businesses are impacted by late payments, and 27% of those are left unpaid for 2 months or more.
Whether you’ve been working with a client for years, or they’re brand new to the business, here are some expert tips on how to check out their financial health and get your invoices paid on time, every time.
1. Check their credit score before you start working with them
Understanding your customers’ financial health is important as it tells you how likely they are to pay their bills in full and on time.
If you’re about to start working with a customer, it’s better to know about any patchy credit history before you invest time and resources into the relationship. The first and easiest place to look is Companies House, where you can verify for free the basics of a Limited Company, including when they file their accounts, who’s making decisions, insolvency details and more.
Check your customers out with Hokoscore
With Hokoscore, you can find out more about your potential clients in seconds. You’ll get detailed credit scores and deep company insights for free.
- Find out customers’ predicted financial health for the next 12 months.
- Get a simple score between 1 and 5 (from good financial health to companies facing serious default).
- Scores are based on financial position, performance, directors, mortgages, business events and more.
- Hokodo’s credit scoring algorithms are continuously back-tested and enriched for maximum detail.
By developing good relationships with reliable clients, and ruling out riskier options, you’ll be able to trade more confidently in any sector.
2. Choose shorter payment terms
If a client only gets average scores with Hokoscore, that doesn’t mean you shouldn’t trade with them at all.
Shorter payment terms can help keep your cash flow healthy. Rather than stipulating a 90-day deadline, for example, setting a shorter payment period of 1-2 weeks can help encourage faster payment. In some sectors, it’s good practice to ask a client for an advance before starting any work.
Discounts or special offers for early payment can also incentivise clients to process invoices on time, as can applying penalties and charges for late payment.
Top tip: Discuss payment terms with clients in advance so they’ll know what to expect. When it’s all in writing and everyone’s on the same page, it should be easier to get paid.
If your client insists on long payment terms, make sure you take out credit insurance or partner with a payment solution provider who protects your business from non-payment and other credit risks – more on that later.
3. Actively chase invoices
Sooner or later, every SME faces late payments. As a rule of thumb, 50% of invoices are paid late in Europe, sometimes by a few days, sometimes by weeks.
Without consistent reminders and processes, payments will take much longer to appear in your business account. Problem: chasing late payments (“dunning” as professionals call this activity) is a time-consuming activity.
There are some great platforms out there that will do the chasing and help you stay on top of your cash flow – some of our favourites include Chaser, Upflow and Fluidly.
Most clients need a reminder now and then, and it’s up to you (or your clever software) to do the reminding.
- Set up automatic reminders. Your invoicing or cash flow management software will remind clients a payment is due so you don’t have to.
- Hire a bookkeeper or accounts specialist. Sometimes hearing directly from someone in accounts can make a big difference to payment speed.
- Be consistent with all reminders. If the payment deadline is in 30 days, the reminder should be sent out on day 30 or 31 – whichever you think will be most effective. That way, both you and your clients know exactly what’s expected and when.
- Gradually escalate, from gentle nudge by email, to phone call, up to formal notice.
4. Use smarter payment solutions
When customers are faced with tech issues or inconvenient options at the point of payment they’re likely to get frustrated and abandon the process altogether, meaning you have to wait longer to get your money. Fortunately, there are a number of smart payment solutions available which are conducive to payments that are quick, easy and on time.
One such payment method is Hokodo’s B2B Buy Now, Pay Later solution, which has been designed specifically to help SME merchants and marketplaces manage payments and grow their businesses without being exposed to the risk of late payments. Here’s how it works:
- Customers visit your B2B e-commerce store and fill their basket as usual. In the background we run soft credit and fraud risk checks.
- At the checkout, customers are presented with the payment terms and credit limits for which they’ve already been approved. They choose to Buy Now, Pay Later with Hokodo.
- Once the order has been shipped or the service provided, we pay you upfront so you don’t have to wait for the cash.
- Your customer gets more time to pay, and is presented with a range of the most convenient payment options. We handle all collections and protect you against the risk of nonpayment..
Hokodo’s B2B Buy Now, Pay Later solution can be fully customised to meet your needs as a seller. In practice, this means we can exclude certain high-risk customers from accessing 60- and 90-day terms while offering these longer payment periods to the rest of your clientele.
With Hokodo taking responsibility for credit checks and chasing invoices – all while guaranteeing payment and risk protection with our Lloyd’s of London backing – your team can spend their time and resources on what really matters: selling more and growing your business.
Getting paid should be easy. With Hokodo, it can be.