- 11 Nov
How To Get Invoices Paid
This post explains the steps that you can take to get invoices paid.
How To Get Invoices Paid
When you offer your customers trade credit, typically you will raise a credit invoice that you send to the customer to request payment at a given future date. At that point the customer becomes your debtor.
In some trades, such as construction, instead of an invoice an "application for payment" is presented to the customer. Which ever method is being used, the issue that it creates is that a supplier often has to wait for their customers to pay for a particular transaction, whilst having to lay out money for raw materials, staff costs and other expenses in advance.
Credit Control Systems
This can create a cash flow pressure on the business. The key to ensuring that your customers pay your sales invoices in a timely fashion, is by implementing an effective credit control process. We have put together a comprehensive guide to running your own credit control system, which gives some help as to how you could structure that system, to maximise the possibility of being paid on time by customers.
Unfortunately, if you are extending credit terms to your debtors, no matter how effective your credit control system, you are still likely to have to wait a period of time in order to receive the funds relating to any particular sale. Typically, this could be 30 days, as the most common credit terms extended within the UK are 30 days. However, in some trades the credit terms demanded are far beyond this, sometimes 60 to 90 days, or even more.
It is important to understand distinction here between the period of credit that is granted, and the time that a customer may take to pay. The latter may reach well beyond the period of credit that you are willing to grant them. If your cash flow is such that even an effective credit control system is not sufficient to solicit payment quickly enough, there are other methods of liquidating your invoices quickly, in order to raise cash.
Receivables financing is a service whereby a finance company will provide the majority, or all of the value of your invoices upfront (less charges) so that you do not have to wait for your customers to pay. These advances against invoices are called "prepayments", and they can significantly improve the cash flow through your business.
When you raise the sales invoices on 30 day credit terms, you will be waiting at least a month to receive payment. If you are using a receivables financing facility, you will receive the majority of the value of that invoice immediately.
The only other option is to demand payment in advance, or cash up front from from customers. However, this can make you appear uncompetitive when compared with your competitors. It is for this reason that most businesses end up extending credit terms to their debtors.
If you are having an issue with the time that is taking to get an invoice paid, please speak to Sean on 03330 113622, to find out how we can help you accelerate your cash flow. Even if you have a single invoice that you need a prepayment against, this can be arranged without any obligation to receive funding against the rest of your sales ledger or future invoices.
You may also find that your business could benefit from having a professional credit control outsourcing company dealing with the collection of your outstanding invoices. This can be in addition to providing prepayments, which is called factoring, or it can be provided on a stand-alone basis