Late and protracted payments by large corporations and state agencies is putting an increasing number of small and medium enterprises (SMEs) under unnecessary pressure…
Gerrie van Biljon, Executive Director at Business Partners, a specialist risk finance company for SMEs, outlines a number of steps that SMEs can follow to protect themselves from this type of situation.
Negotiate payment terms with customers upfront
Many small businesses don’t negotiate stringent payment terms upfront for fear of losing a potentially large customer. Many large organisations know this and put pressure on suppliers to accept their often lengthy payment terms. “While it is not always easy to stand firm in these situations, failing to do so could result in massive dangers down the line.
“Make it clear to the customer what the credit terms are. 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 cashflow,” sats Van Biljon.
Ensure invoicing is done correctly and timeously
Before accepting an order or brief, van Biljon advises that the supplier should fully understand the meaning of all payment terms. “This includes particular requirements regarding invoicing, what references or order numbers should be quoted, what the procedures are for making payment, as well as whether the customer only accepts electronic invoicing. It is highly unlikely that the customer will pay before their standard terms, but it is advisable to discuss payment before in order to find out what flexibility they have.”
Take swift action on late payment
Many small businesses shy away from pressing large clients for payment fearing that this could damage the relationship. “One option is to outsource invoicing and collections to an outside supplier, who is able to chase late payment on the supplier’s behalf. This will save the business owner’s time and effort of chasing overdue invoices, which is a distraction from running a business.”
Escalate issues sooner rather than later
It may be advisable to escalate the issues internally so that the client’s senior employees become involved sooner rather than later. “This particularly applies at the first signs of a debt going bad, or if there are implications for other invoices or work already in progress. Establish a policy 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 government’s late payment option
Van Biljon points out that SMEs experiencing late payments of more than 30 days after doing business with the government can now call a hotline 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.”