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December 13, 2010

Late payment penalties

Small business says that new laws targeting firms who consistently make late payments will have little impact.

Credit reference agency Graydon UK, has published a report which says that 53% of the 331 credit managers they questioned believe the EU Late Payments Directive will not work.

The directive is designed to ensure that all private companies and public bodies settle invoices in 30 days, but the report found that credit managers believed the laws simply won’t bring substantial change fast enough as certain conditions on the directive, will still mean big companies have considerable power to delay payments to smaller businesses.

Managing payments in a challenge for any business, and in a small business the impact of late payments can be very serious.
This helpful advice from bytestart.co.uk is a good model to try and use.

1. Know your customer: make sure they are able to pay their bills by getting a credit check on them.
2. Agree payment terms before you supply: If they intend taking 60 or 90 days to pay you should find out before starting the contract and make a clear decision to take the work or not.
3. Invoice accurately clearly and promptly: Make sure you know to whom and where to send invoices and what detail they must contain to ensure no hold ups.
4. Don’t be afraid to ask for payment: Telephone shortly after you send your invoice and progress the invoice through the customer’s invoice payment system noting who you speak to and what is said in conversations.
5. Discounts for prompt payment can be worthwhile: though this depends on your need for the payment.
6. Factoring and invoice discounting: Customers must be creditworthy and you must be prepared for the additional checks and procedures which come with this sort of finance. On the plus side you are likely to get more finance than from a conventional bank loan or overdraft.

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