Businesses receive payment from their customers in different ways. Shops and online retailers have the advantage of receiving payment when they make the sale and therefore mostly have no issues with customers not paying.
The majority of businesses, however, raise sales invoices and have to wait some time before they receive payment for the goods or services they have provided. Perhaps a week, maybe a month or maybe three months or more. You should agree payment terms with your customer and should always indicate on your invoice when payment is due.
So how do you manage the customers who don't pay you when you expect to be paid? Do you send an email reminder or two? Do you pick up the phone and talk to them about when they expect to make payment? Or do you wait patiently until they decide to pay?
Or are you one of the many businesses who doesn't actually know who owes you and how much and relies on them to pay the amount due when it is due?
One of the tasks we carry out for our clients who sell "on account" is that we provide them with a report showing the invoices which have not yet been paid. Sometimes our client is convinced their customer paid but it is only by allocating all the income and reconciling the bank that an accurate list of outstanding amounts can be produced.
One of our clients was recently sent a reminder for an August 2017 invoice that hadn't been paid. The supplier had not sent out a statement so our client wasn't even aware that there was a missing invoice. This is not unusual and every time it makes me wonder how businesses keep their cash flowing if they don't keep on top of unpaid invoices. Five months is far too long to leave an unpaid invoice.
Another thing that surprises me is payments made which don't match any outstanding invoice. It may be a duplicate payment for an invoice which has already been paid or a random amount which doesn't go with anything and may even belong to someone else. So many businesses don't ask for that payment back and in many cases it is not volunteered by the receiver - after all it helps their cash flow and they may never have to repay it. This is what we see when we are working with accounts. Its easy to make a duplicate payment if your supplier sends you another invoice as a reminder to pay, but if you don't keep on top of your accounts you will never know you paid it twice. It will just be seen as another payment going out of your bank.
We invoice on behalf of clients large organisations who have rigorous processes. These processes mean that if the invoice address or bank details don't match the ones they have on their system they ignore it. In some cases they will ask us to complete a new supplier form. And if it doesn't have a PO number there is even less chance of getting paid. However these processes don't stop them making duplicate payments or paying an amount which doesn't match anything which is outstanding. Many don't send remittance advices and make payments which in no way indicate who sent it. It can be a guessing game but where we can identify the organisation which sent an incorrect payment we do attempt to refund it although frequently unsuccessfully because they don't know what the refund is for!
Keeping your accounts up together so that you know who you owe and who you have to pay is so important. It means that you won't have lots of customers owing you, or if you do, you will know why and how much. And if your accounts are up to date you will know that you won't be chasing payment of an invoice which has already been paid. Keeping your accounts up to date also means that if you do pay your suppliers twice you will spot it the next time you reconcile your accounts.
My tips for good credit control:
1. Keep your accounts up to date regularly (at least monthly). Allocate receipts against customer invoices, payments against supplier invoices and reconcile your bank ensuring you have included all the payments in and out and that the balance matches the statement from the bank.
2. Run a report from your accounts software so you can quickly see who owes you and who you owe (your debtors).
3. Make sure your sales invoices meet all the requirements of your customers - include a purchase order number if required and send it to the appropriate person to sign off.
4. Check that your customers have received your invoice either before the due date or immediately after if they haven't paid. If you know they only have one payment run a month check they have received the invoice well before that payment run otherwise you will have to wait another month.
5. If you make a duplicate payment or a payment to the wrong supplier contact the supplier and ask for it to be returned. If you are about to make another purchase from them make sure they will allocate the payment against the new invoice.
6. Your suppliers will want to continue to do business with you if you pay early or on time and they might help you out with longer payment terms if you need it in the future.
Our team of bookkeepers keep the businesses we work with up to date with their accounts and ensure they know who owes them and who they owe by producing regular monthly reports for them. We also give them management reports so they can see exactly how their business is doing every month.
If this is something that would help your business give us a call to talk through what you need. We can get your accounts on track, give you monthly reports to help you manage your business and prepare and submit your VAT returns. We do payroll and auto enrolment too.
Call us now on 01722 341820 to see what we can do that will help make your life a little easier and give you peace of mind.
