Running a business is a tough job, and it’s definitely not for the lazy. August 2015 saw 42,110 new start-ups enter the world of business, eager to get their products or services out there. However late payments are slowly destroying the SME market, with research from Bacs stating that SME’s are racking up a collective £10.8 billion a year in overdue payments- that’s an average of £11,500 each. Any new business will face the challenges of having to get customers through the door, but making sure they are creditworthy customers is the most important. If your customers aren’t creditworthy, they may not pay you on time. Unfortunately it’s a ripple effect- your customers don’t pay you, you can’t pay your suppliers, and your suppliers can’t pay their suppliers, and so on. The UK market is caught in this vicious cycle of late payments and extra care needs to be taken to avoid it.
If you’re a new business, getting off to the best possible start and only dealing with creditworthy customers will hopefully set up a solid foundation for your business. However if you have got into trouble in the past, it’s not too late to change it!
Here are some tips on how to get your money and business under control:
- Credit checking. You may have heard this a thousand times before, but it really is the only way to know what a business’ payment behaviour is like before you go into business with them. For example, a company’s credit report is like their passport in the business world. It can show you who the company are, where it’s based and details of the decision makers who run the business. However unlike a passport, it will also show you any bad points about that company. For example, it will show you if they have had any CCJ’s issued against them, their mortgages, and most importantly their payment behaviour. On a Creditsafe credit report you can see how many Days Beyond Terms (DBT) a company will pay you and you can even compare it to the industry average, allowing you to calculate your cashflow.
- Monitoring your customers is the key ingredient to having control in your business. Many businesses think that once they have deemed a customer creditworthy they are good for payment for as long as their contract runs. This isn’t always the case. A customer’s payment behaviour can go downhill at any time, and sometimes at no fault of their own. If their customers don’t pay them, they may struggle to pay you, so monitoring them on a daily basis is always advised. Creditsafe’s Risk Tracker monitors these customers for you. Simply input your customer base into the system and they will be automatically monitored; sending you an email if anything on your customers credit reports’ changes.
- Targeting the right people. With B2B business especially, you do have an element of control over who you do business with. Businesses may approach you for your services and you can decide after credit checking them if you are willing to provide your business to them. However when you are targeting people to do business with, you have the opportunity to only target creditworthy customers. You can either manually check customers credit reports before you target them, or you can get marketing data from Creditsafe that has already been pre credit checked and are all ready to be targeted.
With your foundations set up to deal with creditworthy customers, your invoices should get paid much faster and on time. However if you are still having trouble getting paid, read our blog post on how to get paid on time.
If you still have customers who are bad payers and it would be in your best interest to continue doing business with them, review their payment behaviour and forecast your cashflow to handle their late payments. Remember, they’re not a customer if they aren’t paying you; they’re a debtor. If you need help recovering debt and you’re not sure how to go about it, read our blog post on How to recover debt, legal vs recovery.