Getting Customers to Pay Up

Getting customers to pay up

Has chasing your customers become an uphill struggle?
One major problem for growing businesses is the frustrating delay while waiting for some debtors to pay their bills.
If you don't want to spend time and money chasing up the debt yourself, one solution is factoring.

The firm acting as the "factor" purchases the debts as they arise and the original client company can draw down cash secured against those debtors up to an agreed amount - say 80% of the book debt.

Once the debtors have paid in full, the company receives the remainder of the debt owed to it, less the factor's fee.

The factoring company takes over the running of the company's sales ledger, which can improve the efficiency with which debts are collected and reduce the risk of bad debts.

Chasing payments

Factoring is generally used by small companies.

Businesses with a turnover above £1m usually use a alternative version - invoice discounting - where the company retains the administration of its sales ledger in-house.

This way, its customers need not know that the company is using an invoice discounting service.

Businesses that don't want to use factoring or invoice discounting can take steps to improve their own debt-collection record.

DIY factoring Check the credit references of new customers and set them credit limits.


GETTING CUSTOMERS TO PAY UP
Offer discounts for prompt payment
Do a background check on new customers
Charge interest on late payments
Make sure your invoices are correct and minimise the risk of dispute by meeting the contract terms in full.

You can also offer discounts for prompt payment and get into the habit of chasing up late payers regularly.

For serious problems, consider using collection agents, who may charge 5-15% of the amount collected.

Another option is to start charging interest on overdue debts - small businesses (those with 50 employees or less) have been able to claim interest since 1998.

From November 2002, a business of any size will be able to do so.

Positive Invoice Finance can help any size of company with their cash flow problems. Positive Invoice Finance can help arrange factoring, invoice finance, invoice finance or invoice discounting facilities.