Businesses face a unique challenge when it comes to cash flow during the months of December and January as many companies close their doors between Christmas and New Year's Day, so payment of invoices are often not processed until mid to late January. This delay in payments can put a huge strain on businesses that have to pay tax, VAT and rent during this period.
However, by taking proactive steps to secure payments prior to Christmas, a business can ensure it has a healthy cash flow resulting in a stress free start to the new year. Below are 6 steps that can be taken to optimise your payment collections.
A common reason for late payment is a customer claiming that they have not received your invoice. By contacting your customers to check that the invoice has been received before the due date you have enough time to send a replacement if they claim they have not received it! Even if they have received the invoice, the customer can confirm to you that it is on a payment run.
Christmas time can be the perfect time to show your appreciation to customers who pay their invoices early, and many companies do offer prompt payment discounts to customers. This strategy incentivises customers to pay early. Your business may find the increase in cash flow and customer goodwill is often worth the discount.
Debt collection steps should be taken now. The only way to avoid the typical end of year wind-down is to get ahead of it and start pursuing late payments as soon as they become due. Businesses have a lot to do to wrap up the end of the year, so a small nudge is enough to remind them about the invoice. If not, there is still enough time to take further action before the bank holidays arrive.
Do not be afraid to be robust, especially with customers who are persistently late remitting payments. Most businesses have a small handful of customers who are responsible for the majority of their outstanding payments so targeting these accounts first is a good way to ensure your cash flow is boosted ready for the New Year.
Letters Before Action (LBAs) are a cost-effective way of prompting customers to make payment. LBAs sent by email are ideal around this time of year because customers receive them faster, and from our experience the invoices in question are often paid faster as well.
On average 86% of customers pay their debts upon receipt of an LBA from Lovetts.
Whether it is approaching Christmas or not, if your customer is not responding to your requests for payment and has ignored the pre-action letter you sent, the next step is to file legal proceedings by issuing a County Court Claim.
Luckily, you have given plenty of warning to your customer so you have time to do this before the holiday period. Taking legal action need not be complicated or daunting. For example with a few clicks of a button, you could instruct Lovetts through the Casemanager portal to issue court proceedings. The vast majority of claims are paid by debtors swiftly, as they wish to avoid a County Court Judgment.
Furthermore, we have found that most customers, when given fair warning, are not offended if you have to take this extra step. Many of our clients continue to trade with their customers after a court claim has been issued and paid with no further concerns.
The key to ensuring your business has a healthy balance sheet during the holiday period is to simply be proactive with your credit control and debt collection. Ensure you stay on top of your finances this December, and enjoy your time off this Christmas with no need to worry about the books when you return to your desk next year!