Know Your Customer
KYC may sound like a cliché, but it helps to establish a good relationship with your client.
It is much easier to sort out the payment terms and chase the overdue payments when you know what kind of client you are dealing with.
Do not let the frustrations of the late payment sour this relationship. However, small business owners run the risk of offending their clients by being too tough on them about payments.
Do not just go into a business agreement blindly. Instead, do proper research of the business you are about to engage with.
Find out their typical timescales for settling invoices and whether or not they do pay the invoices.
The most extended payment period for Invoices in the Business to Business Sector for the UK is usually 27 days. Find out whether this is agreeable with them.
Ensure you understand their business in detail and the kind of challenges they face. For example, are they profitable, how have they been interacting with other businesses? How many credit facilities have they taken?
All of these are essential questions to be answered when getting into a B2B business, as it will give you an idea of how long it usually takes them to pay an invoice, which you can include in the contract you will prepare for them.
Agree on the payment terms before the contract starts
When you agree on payment terms in advance, you are in a better position to protect yourself from late payments and non-payments.
One thing to be aware of is that the blue-chip companies tend to insist on long-term payments of almost 90 days.
When you enter into a contract with such as company, you must either request payment upfront or be willing to wait for that duration for the payment to be made.
For small businesses, this is a long time to wait for cash, and therefore, they must decide whether or not the business is worth it.
Additionally, the large companies will want to receive discounts for paying early, and this should be considered early on and incorporated into the contract.
Ensure that you invoice promptly and correctly
Not only should you ensure that you send the invoice on time or immediately after the delivery of the services or goods, but you must also ensure that the invoice is correctly written and prepared.
The faster you send the invoice, the faster the company will start preparing the payment. Most companies perform their invoicing in batches, and it may take as long as a week or longer to pay their clients.
Errors on your invoice can also become a big issue, whereby the company may refuse to pay the invoice.
Ensure that the quoted prices match up to all the other data in the system. There must be no inconsistencies that are likely to expose your company and derail your payment.
To mitigate against this, have a quality control system that ensures that more than two people go through the invoices before sending them to the customer.
Remind clients to pay the invoice immediately it’s due
When dealing with and preparing invoices, the best thing to do is to ensure that you prepare and deliver them to the client immediately after the service or goods has been delivered.
Heavy-handed attempts to collect from the client will sometimes backfire and sever the relationship with the client.
This is, in fact, pretty delicate when small companies are trying to negotiate with small ones. The small firm will be uncomfortable applying too much pressure to the big company, and at the same time, trying to salvage the relationship.
Make sure you understand vendor portals correctly
One recent trend for large corporations is implementing online vendor portals where their supplies can log in and submit their invoices and even check on the status of the invoice and any upcoming payments.
It is important that you understand the system and how it works so you do not end up not getting paid.
Understand the right way to issue invoices, accept the purchase orders, and input the correct banking details.
Most times, the portals are designed to cut out the interactions with humans, eliminating the need for helpdesks.
Take time to learn how the portal works to avoid any delays.