Often, the people giving small businesses the greatest grief work in government or for large companies with a lot of market power.
For this reason, it’s important to diversify your client base so you’re not reliant on one large government department to deliver on time, Green says.
“It’s the savvy thing to do,” he says.
Businesses that are too lenient with late bills lose all their credibility.
If someone hasn’t paid in 90 days, they’re unlikely to do so at 120, Mendelson says.
“If you keep waiting until a certain point, you’ve just lost credibility, which makes it harder to collect. My advice is to deal with it, yourself or by outsourcing, fairly early in the piece.”
Instead of waiting around hoping for the best, businesses should know when to bring in the big guns, Green says.
“It’s amazing what can happen when you issue a letter demanding payment on a legal letterhead,” Green says. “Payment usually follows soon after.”
Green says the biggest mistake he sees small businesses make when it comes to chasing up invoices is assuming the best and not chasing up their clients for payment.
“Often, you even see a reluctance to follow up invoices,” he says. “Business owners are very busy, and typically surviving as opposed to thriving. They’ve got a lot on their plate, and it can be a difficult conversation.
“But you can limit the conversations by issuing invoices on time, and automatically following them up. When you deliver a product or good, deliver the invoice immediately. Start the clock ticking. And at 14 or 30 days, follow it up.
“A lot of the reason bills stretch out is because of that lack of follow-up.”
If a bill is late, it’s time to have a personal conversation. And this can be more useful than you think.
“If there’s a dispute with the bill, you need to know early in the piece,” Mendelson says. “That way, if it’s genuine, you can do something about it.
When a bill is late, it’s crucial that someone in your company is talking to the client early to find out what the problem is.
The question asked shouldn’t be ‘when will you pay up’. It should be: ‘is there any reason this bill has not been paid?’
“Often, by the time an account gets referred to us, people will say, ‘oh, I wasn’t happy with the service so I’m not going to pay’. It’s better to find that out early. If they don’t raise it then but it gets raised further down the track, you know it’s just a tactic to defer payment rather than a genuine problem with your service.”
Getting on the phone and asking questions about payment isn’t something everyone loves to do. If you want it done right, you can’t just leave it to your receptionist or book-keeper to handle.
“If it’s something they don’t want to do, they just won’t do it,” Mendelson says. “They’ll just send out statements every month because that’s easy to do. But it’s not what brings in the money.”
The key to getting your bills paid on time is to find someone within your business who likes getting on the phone and calling, or who views it as a challenge.
“Every business will have someone who’s quite strong-willed, who can communicate well, who is forceful but not rude. And that’s the person who’ll want to do it. They’ll find it a personal challenge to get a result.”
“It really comes down to finding out if this is something you or your people would like to do, rather than something you or they are prepared or forced to do.”
Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
