Late Payment

By Mike Southon

The biggest complaints in my inbox from entrepreneurs are not about winning business, but getting their customers to pay on time.

The root of the problem is that most small businesses are selling to companies larger than themselves, who have the advantage of a full-time finance director. These seasoned professionals know how to manage cash-flow, and therefore how to improve their companies’ bottom line instantly by quietly moving payments from thirty to ninety days.

Once this is done, there is little you can do other than ask the person who actually placed the order to intercede on your behalf, and hope for the best. But prevention is always better than cure, so here is my advice for these troubled times.

In a recession you should sell in a different way, stressing safety and return on investment, rather than glamour or excitement. This is essentially a financial argument supported by a spreadsheet, which is not the normal weapon of choice for a salesperson.

You should therefore always double-team your salesperson with a finance specialist. If you do not have a full-time finance director, then you should pay a little extra and get someone appropriate to help supervise the sales process.

They will put in some sensible precautions in advance, such as credit controls on small and medium-sized businesses who might want to place orders. One such company is Creditsafe which holds a database of over 4.4 million companies in the UK, and updates their database daily, including information on credit ratings and limits, country court judgements, three years of accounts, and information on the company’s directors.

In my experience, it is rare for a company to turn down business from someone purely on the basis of a poor credit rating, but it does improve the negotiating power of the salesperson to ask for a substantial up-front deposit.

If the potential order is with a large organisation who have an excellent credit rating and who represents a substantial share of your revenue, there is still the spectre of their moving the goal-posts on payment terms. The solution is to make sure that as well as a dialogue between, say, your technical people and their technical people, there is a similarly frank and open conversation between your finance specialist and their finance director long before the order is placed.

As I have mentioned in a previous column, if you cannot afford a full-time finance professional, it is a very good idea to employ somebody part-time from specialist organisations such as the FD Centre.

The reality is that few large organisations want to be seen to be bankrupting small companies by applying unreasonable payment terms. Problems usually arise because the salesperson does not have the knowledge and patience or even vocabulary to discuss fiscal matters with finance people at an early stage in the process.

Left to their own devices, finance professionals can usually come to a sensible conclusion which represents a win for both sides. The supplier might be happy with longer payment terms in exchange for a larger order, or can offer a discount in exchange for an up-front payment.

But if you are already staring at a folder of unpaid invoices, then all is not lost. One option is to consider a factoring or invoicing discounting company, but this is often seen as a last resort, as many organisations will now not deal with them.

A different approach is offered by Cashflow Protector from the Cashew Group. Marketing Director Alan Smith explained to me that the problem is that most sole traders and small businesses do not have the patience or skill set to chase their unpaid invoices in an organised way.

Cashflow Protector offers a web-based service enabling you to register your unpaid invoices on-line, and then for a low monthly subscription rather than a percentage of the invoice value, they will chase your invoices for you. Smith claims a 97% success rate for their customers. Cashew Group also offers legal cover to protect against the very bad payers.

So my conclusion is that late payment is a natural consequence of difficult economic conditions and has no easy solution other than to employ the services of a professional. This could be either a finance expert or a company who knows how the system works. It may be expensive in the short term, but represents an excellent return on investment over time, the same argument you should use to promote your own products and services.

 

This article Copyright CMike Southon 2009 All Rights Reserved
Not to be reproduced without permission in writing
Originally published in The Financial Times
Mike Southon can be contacted at [email protected], www.beermat.biz