As any business owner knows – from SMEs to corporates – collecting payment for goods or services can be challenging at times. From customers that go quiet and don’t respond to follow-ups, to those that pay well outside agreed terms, there are seemingly hundreds of reasons for late – or no – payment. But what are the alternatives, and are there easier ways of collecting the payment due on your invoices? It’s all about putting the right systems in place.
In an ideal world, doing business should be as simple as providing a service or product, and receiving payment for it as soon as it’s delivered. In reality, however, it’s not quite that simple. There are very good reasons why things like payment terms and credit facilities exist. In most cases, if everyone sticks to their agreed terms, there shouldn’t be too many issues. However, this is also not the reality of daily business.
Chasing invoice payment – the dilemma
There are several reasons why you might struggle to collect payment, and it can cause considerable frustration for your accounts team. Besides the frustration, however, there are numerous other, problematic, downsides to missed or late payment collection.
The first issue is inadequate cash flow. If you are unable to collect payments on time, your business could suffer cash flow difficulties. These, in turn, make it difficult for you to pay your employees and your own suppliers, creating a knock-on effect of them having cash flow problems.
Spending any significant time chasing down late payments is also a waste of resources. It is often counter-productive to dedicate one of your accounting staff to late invoice collection, and it can put pressure on the rest of the team. It would be far more efficient to have that employee performing other business-critical tasks.
Business relationships can also sour as a result of overdue payment collection efforts. Most people don’t enjoy being reminded that they owe someone money, and it can put a strain on the relationship you have built. At the same time, the company that is owed the money could feel that all the effort put into the relationship has been wasted, or refuse to do business with the customer again. And, if things escalate to the point where legal help is sought, this often signals the end of the relationship.
Besides the issue of late payment, simply juggling various different payment terms or settlement arrangements with various customers can be challenging for your accounts team. Leaving these many small tasks to be done manually can cause mistakes, which again hinder your productivity and can cause problems in your customer relations.
But what realistic alternatives are there to chasing invoices?
Advance payments – For some situations, requesting payment in advance seems like the best alternative. However, this is not always practical, for reasons ranging from cash flow to how long the project could take. Also, customers are frequently wary of advance payment, as they believe this could signal a scam, or they are concerned they won’t receive the expected level of service delivery. Finally, if the project grows beyond its original scope, or there are unexpected costs along the way, it can be difficult to justify why the client needs to pay more.
Work-in-progress payment – In some circumstances, this can work excellently, as clients are often reticent for work to stop once it has already started. However, this can suffer from many of the same issues as regular invoice payment chasing. You may threaten to stop work if payment has not been received, but that just results in incomplete work and no payment.
Debit orders – Of all the payment collection methods that are available, debit orders can be the most effective, efficient and painless way of keeping your cash flow healthy. Firstly, it eliminates multiple manual, repetitive tasks that your staff need to perform, leaving them free to handle more challenging matters. Debit orders make sure you receive payment on time, which eliminates your cash flow problems almost instantly. And even better, it helps you maintain those all-important business relationships, without which your business cannot survive.
Debit order collection is one of the most efficient methods of ensuring revenue flow and liquidity, and by using a dedicated management company to handle your debit orders, you enjoy the benefits immediately. At Three Peaks, for example, we are able to integrate with your existing accounting processes easily and simply, so that we don’t disrupt what you already have in place. Rather, we are a value-adding service that simplifies and automates tasks that you don’t need to be focused on, leaving you free to build your business.
Our system works for various different types of payments, including one-off purchases. By setting up debit orders from the start, you completely eliminate the need for invoice follow-up.
By implementing a robust debit order payment process into your business, you can quickly and easily reduce or even eliminate your revenue collection and cash flow issues. You will automate multiple tasks, and boost your accounting team’s efficiency instantly. Best of all, your customer relations will benefit.
If your business isn’t routinely using debit order revenue collections, get in touch with us today.