Let late payers talk to the hand

The biggest complaints in my inbox from entrepreneurs are not about winning business, but getting customers to pay on time.

The root of the problem is that most small businesses sell to companies larger than themselves, which have a full-time finance director. These professionals know how to manage cash flow, and therefore how to improve their companies’ bottom line instantly by moving payments from 30 to 90 days.

Once this is done, there is little you can do other than ask the person who placed the order to intercede on your behalf. But prevention is always better than cure, so here is my advice.

In a recession, you should sell in a different way, stressing return on investment, rather than glamour or excitement.

You should always create a double team, combining your salesperson with a finance specialist. If you do not have a full-time finance director, you should get someone appropriate to help supervise the sales process. They will put in some precautions, such as credit controls on small and medium-sized businesses that might want to place orders.

One company that supplies such a service is Creditsafe. It holds a database of more than 4.4m companies, updated daily and including information on credit ratings and limits, country court judgments, three years of accounts and information on the directors.

It is rare for a company to turn down business from another purely on the basis of a poor credit rating, but it does give the salesperson the clout to ask for a substantial upfront deposit.

If the potential order is from a large organisation with an excellent credit rating and this represents a substantial share of your revenue, there is the spectre of it moving the goalposts on payment terms.

The solution is to make sure that there is a frank and open conversation between your finance specialist and their finance director long before the order is placed.

If you cannot afford a full-time finance professional, you can employ somebody part-time from specialist suppliers such as the FD Centre.

Problems usually arise because the salesperson does not have the knowledge and patience to discuss fiscal matters with finance people at an early stage in the process. But, left to their own devices, finance professionals can usually come to a sensible conclusion for both sides. The supplier might be happy with longer payment terms in exchange for a larger order, or can offer a discount in exchange for an upfront payment.

If you are already staring at a folder of unpaid invoices, all is not lost. One option is to consider an invoicing discounting company, but this is often seen as a last resort.

A different approach is offered by Cashflow Protector, part of the Cashew Group. Alan Smith, marketing director, claims that most sole traders and small businesses do not have the patience or skills to chase unpaid invoices in an organised way.

Cashflow Protector offers a web-based service. For a low monthly subscription, rather than a percentage of the invoice value, Cashflow will chase your invoices for you. Smith claims a 97 per cent success rate.

Employing a finance expert or a company that knows how the system works may be expensive in the short term, but represents an excellent return on investment over time – the same argument you should use to promote your products and services.

Creditsafe: www.creditsafeuk.com

The FD Centre: www.thefdcentre.co.uk

Cashflow Protector: www.cashewgroup.com

mike@beermat.biz

More columns at www.ft.com/mikesouthon