Getting Paid (Part 1)

November 18, 2009

We all know that cash flow is the lifeblood of any business. Thus, getting paid is crucial for your business. Clients who owe you money due to late payments create cash flow difficulties for your business and you must take action to limit your liability to these late payments. Late payments create extra administration for your business which means that either your staff’s time is being wasted chasing up debtors or worse, your time is being tied up and this costs you not only the time you lose doing the administration but there are opportunity costs incurred because you cannot use this time to develop new business. Late payments also create bank charges for you in many cases. Thus, late payments have very negative consequences for your business.

The result of people engaging in late payments is that you are in effect giving them an interest-free loan. The money they should have paid you is now being used to pay something else. If you had not let then pay you late then they would have to use their overdraft facility or take out short-term financing which would cost them money. So when people are late paying you remember to ask yourself, ‘who is giving you an interest-free loan?’

Here is the key point that you need to understand about late payments and debtors. If you are not being paid then it is YOUR fault. You did business with them in the first place, you gave them credit terms and you probably have let them off the hook by not following up on the administration properly. There are actions that you can take to limit your liability to late payments and we will cover them in the next few posts.

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