Small businesses won't pay and won't chase
16th Jun 2008
The general uncertainty in the market is causing small businesses to slow down paying their bills, but oddly these same businesses are not chasing up their own debtors.
Pick up any newspaper today and it is filled with dramatic stories about people who can't sell their houses, can't get credit and revelations about another bank whose profits have disappeared. It's no wonder that there is a sense of gloom about the immediate future.
We've entered into a self perpetuating cycle of despair that actually, at this time anyway, is worse in our minds than in reality. This has given rise to a strange schism in the behaviour of the UK's small business owners. They know that hard times may be round the corner and so are dragging their heels when paying for services or goods that they have bought, however they are not yet so badly affected that they are motivated to chase the money owing to them.
In a way it is understandable. Not paying is a default action that requires no effort on their part, whereas ensuring you are being paid on time means positive action, which can be a bit daunting. Sending letters or ringing customers that you don't want to upset is never easy and unless you are desperate for the money you can always put it off to tomorrow.
The trick is to not let debtors build up and then have to make an excruciating effort to chase the money you are owed. Instilling a professional approach to being paid will relieve the mental turmoil of when to contact customers about money owing and if built into your normal business practices will happen with very little effort.
It needs initially a bit of thought:
- Put in place the right Terms & Conditions, you should state clearly the number of days allowed for payment.
- If it fits your business model, you could give a small discount (say 3%) for early payment.
- Lay out the flow of initial invoice through to reminder letters and just follow that through.
- If you are using an accounting system it should produce a list of those customers who are overdue by age of the debt.
- Be prepared for overcoming in a professional manner false excuses that clients may use to delay paying.
Finally, just realise that this is business. You can keep a good relationship with customers and still be businesslike in ensuring you are paid, they are more likely to respect you for it.
Lawrence Gilbert
www.companypartners.com
