By Guest Blogger:
Paula Downey Jones, Chief Financial Officer
Late payments are a popular topic nowadays, with businesses, politicians and the media discussing its impact. Undeniably, it affects both individual businesses and the country’s economy. A recent survey by Zurich Insurance claimed that SMEs are owed a total of £44.6 billion in late payments, with the figure growing.
Why are late payments such a big issue?
Any organisation requires a steady and predictable cash flow in order to cover operational costs and allow the organisation to plan for growth. When a supplier or member is late with the payment, there is less money to cover these costs and future plans can become harder to implement. This can lead to businesses turning to borrowing, or delaying plans for growth, including putting on hold investment and recruitment decisions.
In a worst case scenario, frequent and big volume late payments can have drastic effects on organisations, especially smaller ones, and may lead to bankruptcy. In fact, the aforementioned survey points out that 67% of businesses claim that overdue payments forced their business to close, while 41% had significant cash flow problems.
What can member organisations do to avoid late payments?
- Clear communication as to what members are paying for and when
Make sure that your members know exactly what they are paying for. If there are different membership fees with various benefits, these have to be clearly outlined for both prospective and current members to understand. Similarly, if your organisation is doing any work for another business, clear communication and agreement as to the fee you are charging and when it is due is required, so there are no misunderstandings. A contract that clearly lays out these points, and the scope of any work to be done, that is signed by both parties ahead of the service or work being provided, will help to protect the business.
- Create clear easy-to-read invoices
Invoices should be easy to read, with any agreed fees and VAT listed, along with the due date. In addition to your organisation’s and the customer’s (i.e. your member or the organisation you are supplying) addresses, the invoices should also include a note about payment methods. Also, ensure that both the contract and the invoice are for the same customer legal entity, as this will help if you need to recover non-payment later down the line.
- Offer flexibility
When it comes to payment, you should offer your members and suppliers the flexibility to choose their preferred payment method, whether it is card, PayPal or Direct Debit. Sage Pay’s research claims that 90% of UK consumers think that businesses should offer a wide choice of payment options, while Barclaycard’s research claims that consumers are reluctant to shop if emerging payment methods are not offered. Your members may be reluctant to pay their fee if the payment process is one they do not favour.
- Get members paying by Direct Debit
Although offering flexibility is attractive to customers, organisations that use Direct Debit to receive payment need less resource in their credit control function, have more predictable cash flow and take the hassle of payments away from their customers. Many customers are happier to know that they don’t have to remember to pay an association or action an invoice, as it will be taken care of automatically by the supplier.
These four tips should not only help you to avoid receiving payments late, but also increase your membership conversion rate, and even help protect your brand’s reputation.
Yes, brand protection.
Organisations should not only protect themselves from late payments, but they should also protect their reputation and brand. If you don’t want someone doing something bad to you, then you don’t want to do the same bad thing to someone else, right? The aforementioned Sage Pay survey confirms this, with their findings that 36% of consumers would stop using a company if they knew it was deliberately withholding payments.
Founded in 1998, SmartDebit are a leading UK Direct Debit service provider. Authorised and regulated by the Financial Conduct Authority, the company help a range of subscription businesses (from large utilities and global telecoms to local education and regional charities) get paid the correct amounts. SmartDebit are also a Bacs approved bureau (B08032) and hold ISO 27001:2013 certification for data security.