Trade debtors are other businesses that owe money to your company for goods or services you’ve provided. When these trade debtors pay their invoices late, it can significantly impact your cashflow.
To protect your business’ cashflow, here's five things you can do to speed up payments from your trade debtors:
Offer Discounts for Early Payments
Offering discounts to customers who pay early is a great way to discourage late payments. You can give a small discount to customers who pay their invoices within a specified time frame. This incentive can motivate customers to pay early and, in turn, help you get paid faster and reduce the number of debtor days in your cashflow.
Implement Clear Payment Terms
Clear payment terms ensure that customers understand when payment is due. When you send an invoice to a customer, make sure that the payment terms are clear and easy to understand. You can also include a late payment fee to encourage customers to pay on time.
Send Out Timely Invoices
You should ensure that your business always sends any invoices promptly. The sooner you send an invoice, the sooner you can expect payment. It may be worth using an invoicing software that allows you to send invoices automatically and track payment status.
Follow Up on Overdue Payments
If a customer does not pay on time, they are known as an outstanding debtor and its essential to follow up with them. You can send a friendly reminder email or call the customer to inquire about the payment status. Having a system in place to follow up on outstanding debts can help you collect payment from your customers faster.
Tip: you can reduce the risk of overdue payments by checking the credit history of your customer before working with them. If you see a history of late payments or legal action then you can limit your businesses’ exposure before working with them.
Consider Invoice Finance
Invoice finance is a type of business loan that helps to speed up your payment cycle. Your business can borrow cash with the loan secured against the invoices owed to you.
Some invoice finance providers will offer Invoice Factoring, where the lender will also take on credit control for your business, so they will assume responsibility for chasing any late paying customers for you.