2020 saw an increase in late payments for B2B trade. Late payments are a major cause of cash flow difficulties for businesses. Here FinCred IS explores five measures you can take to avoid late payments and protect your cash flow.
Know Your Customer
Carry out checks and searches to ensure you know your customer and establish their credit worthiness. Credit status agencies offer a snapshot of the financial health of a business based on the latest filed accounts and publicly available information. Set credit limits which are justifiable and reflective of the size and creditworthiness of the business.
Credit insurers hold extensive data on companies not in the public domain such as management accounts, business forecasts and payment experience. The information services which come with a credit insurance policy offer valuable insight into the creditworthiness of a business. This makes it easier for you to grow your business and avoid bad debts.
Have A Credit Control Procedure
Set out the credit check and due diligence steps for a new customer. Maximum time frames should be set for issuing invoices, chasing payments and taking legal action.
It is important to act quickly with overdue invoices. The longer an invoice remains overdue the less likely it is to be collected. Many credit insurers have debt collection included as part of a credit insurance policy. This allows the insurer to take over recovery of overdue debts, freeing up your time to concentrate on your day job. At FinCred we also work with a number of debt collection agencies who we can refer you to for your debt collection needs.
Have A Written Contract
Send your terms and conditions of trade to your customers. You should also agree payment terms in writing. Where appropriate include “All Monies due” or Retention of Title clauses, ensuring you maintain ownership of goods until payment is made. Make sure the customer agrees to the terms of payment set out.
You should review your terms and conditions regularly to ensure they still meet current legislation.
Monitor Your Customers
Monitor your customers’ payment performance, outstanding balance and financial health. Keeping an eye on payment performance can provide an early warning of potential problems; are payments getting gradually slower? Is the customer raising more queries? Patterns like this could be a cause for concern.
Monitor the outstanding balance against the credit limit you have set. The credit limit was set based on your credit checks and credit control procedure so try to stick to the credit limit. If a higher credit limit is required to facilitate higher trading, then check that the financial indicators justify an increase in the credit limit. A credit insurer can provide this insight based on the vast information they hold on companies.
Transfer The Risk To An Insurer
Transfer the risk of non-payment by a customer to an insurer with a credit insurance policy. At FinCred IS we are experts in credit insurance. We will place a tailored policy designed to protect your cash flow. If a customer delays or defaults on a payment then you can claim back the money you are owed.
To speak to one of our experts at FinCred IS about minimising your risk of late payment or to enquire about the cost of insurance please contact us.