Late payments are a fundamental issue for businesses of all sizes. Having said that, SMEs are the most affected by payment issues. Large companies tend to have more working capital on their books, allowing them to dip into larger funds and negate some of the downsides of late payments.
The critical problem is that missed or delayed payments impact multiple facets of your business. And this point isn’t strictly about missing payments from clients and customers – it also centres on your delayed payments to employees and vendors. Regardless of where the money goes and who it comes from, you can’t afford to deal with payments that aren’t on time.
So, how do you correct a significant problem like this? Money management is a vital part of running a small company, and this guide splits things up into three core sections:
- Paying your employees on time
- Paying vendors on time
- Getting paid on time
Find a bunch of tips in each section to better manage your finances and gain control of your business cash flow.
Tips For Paying Your Employees On Time
Let’s begin with a look at how to pay your employees on time. We’re starting here as it’s the easiest of all the talking points. Realistically, you have no excuse for failing to pay your employees at the same designated point every week/two weeks/month. The biggest and most common mistake from SMEs is trying to handle these payments manually. You’ll set yourself up for failure and stress – which will all be avoided by investing in payroll services to automate this process.
Payroll software lets you do all of the following:
- Set up a recurring payment date
- Calculate and remove tax from payments
- Pay the correct amount each time
- Generate reports and payslips
As you can see, these features will address the late payment issue – though there’s one other thing to bear in mind.
What if you don’t have enough money to pay your employees?
An issue like this is typically indicative of a cash flow problem. Perhaps you’re not generating enough income through sales, or maybe you’ve got too many delayed payments on your books from clients! We’ll discuss how to get paid on time later on – for now, how do you deal with money issues when your employees need to be paid?
The best approach is to raise enough money for your startup. Make sure there’s enough working capital in the background to help you out of sticky situations like these. Maybe you can look for new investors or focus on diversifying your revenue streams and opening up new ways of making money. Cutting some common and unnecessary expenses will also help, ensuring you have enough cash to pay everyone.
Furthermore, it’s worth reconsidering your pay schedule to make sure you have enough money to maintain it. Employees may love getting paid each week – or every two weeks – but does your cash flow allow this? It could be far easier to pay monthly, as this gives your business enough time to generate the funds.
Tips For Paying Vendors/Suppliers On Time
Neglecting to pay your suppliers or vendors often means you’ll be chased up by annoyed people from their financial departments. It can also mean you’re paying over the odds for services and supplies, as many vendors may charge interest or late payment fees. Obviously, you want to avoid these charges at all costs!
Paying suppliers on time is extremely easy, and there’s no excuse for not doing it. Two tips make it even simpler:
- Set up direct debits – Whenever possible, set up a direct debit or standing order with suppliers. The majority of suppliers will offer this as a payment option, as it’s the easiest way to ensure they get paid on time. Direct debits and standing orders take money from your account when required, making them perfect for recurring services.
- Create payment reminders – There are times when you don’t pay for the same service all the time, and supplier payments are more sporadic. Or, you don’t have an option to pay monthly via a direct debit. As a result, the best course of action is to create payment reminders. Set them up on your phone or PC to alert you of an upcoming payment. When you see it, be sure to send the money right away.
As with paying your employees, make sure there’s adequate money coming into your business to facilitate vendor payments.
Photo by Helcim Payments on Unsplash
Tips For Getting Paid On Time
Receiving your payments on time will help you create a positive cash flow in your company, which assists in paying other people on time. It’s an excellent cycle to drift into, but how do you deal with and prevent late payments from clients/customers?
For starters, charge for your products/services when people buy them if you can. Don’t let them pay after, as this normally means people drag out the payment for as long as possible. In cases when you have to send an invoice, be sure you state the payment date clearly and indicate what happens if a client doesn’t pay on time. Implement some pretty big penalties – like massive interest rates or late payment fees to dissuade clients from taking too long.
It’s also smart to provide multiple ways for people to pay. Let customers choose how they spend their money – offer card payments, PayPal checkouts, Klarna, mobile payments, and so on. Diversity gives everyone a choice to pick their preferred method, which means you should be paid on time.
Don’t be afraid to send payment reminders to any clients who haven’t paid you yet, as well. This is normally relevant to service-based businesses when you perform a service and the client still hasn’t paid the invoice. A friendly email reminder immediately after completing the job will jog their memory and lead to prompt payouts.
To wrap up, late payments are a problem for your company in more ways than one. Issues stem from not being paid on time, damaging your cash flow and making it more likely that you’ll fail to pay people on time too. Work on receiving prompt payments and then you can keep up with regular payments to employees and vendors, ensuring everyone’s happy.
