The frustration of late invoice payments is a universal experience, affecting businesses across all industries. While no sector is immune, recruitment agencies often find themselves facing unique challenges when it comes to collecting payments on time.
This delay in receiving what you’re owed can significantly impact your cash flow, hindering growth and even threatening the overall survival of your business. When unpaid invoices pile up, it can leave you short on cash, making it difficult to cover your own expenses.
In this blog, we’ll equip you with valuable strategies to tackle the issue of late invoice payments. Whether you’re looking for preventative measures to avoid late payments altogether, or solutions to address existing overdue invoices, this guide will provide actionable steps to protect your cash flow.
The impact of late payments
Imagine having placed a great candidate but having to wait weeks, or even months, to get paid for your services. This is the problem faced by countless recruitment agencies across the country. When clients fail to settle their invoices within the agreed timeframe, this disrupts your cash flow – making it difficult to cover your own operational costs (like payroll or marketing). In the worst-case scenario, consistent late payments can hinder your ability to grow and even threaten the overall financial stability of your agency.
Strategies to prevent late payments
So, what can be done if this is a headache you know far too well? Let’s explore some solutions to help you combat late payments, starting with preventative measures.
Client onboarding
Laying the groundwork for timely payments starts right from the beginning of the client relationship. This includes:
>Running credit checks on high-risk clients: This allows you to assess their financial health and payment history, potentially identifying potential late payers early on. You can conduct your own background research, such as confirming financial history on Companies House. Or, you can hire professionals to run credit checks for you.
>Presenting clear and concise Terms & Conditions: Outline your payment terms, any late payment penalties you enforce, and your preferred dispute resolution procedures. Clear expectations from the outset can help minimise misunderstandings later.
> Discussing payment expectations and timelines during initial project discussions: Open communication upfront sets the tone for the entire business relationship. By openly discussing your payment terms and timelines when first engaging with a client, you can ensure everyone is on the same page from the start.
Streamlined invoicing
Streamlining your invoicing process can significantly reduce the risk of late payments. Start by ensuring that invoices accurately reflect timesheets to avoid any disputes over cost. Ensure that they are clear and professional, with all essential information readily available. It’s also a good idea to offer a variety of payment options, including online portals, credit card processing, and bank transfer. This makes it easier for clients to settle their invoices quickly.
Incentivise prompt payment
Another intervention strategy is to offer small incentives. Early payment discounts (e.g. 2% off if paid within 7 days of the invoice date) can help encourage clients to settle invoices quickly. However, this strategy should be evaluated based on your profit margins.
How to collect outstanding invoices
Even with the best precautions, late payments can still happen. Here are some tips to help you recover what you’re owed.
Early intervention strategies
Before overdue invoices become a bigger issue, consider giving your clients gentle nudges to get them back on track with timely payments.
- After the due date has passed, your first move is to send polite follow-up emails or calls to the client.
- It’s important to maintain professional communication. Frame your message as a friendly reminder, and explain that you’re happy to assist if they have any questions regarding the payment process.
- Avoid accusatory language, you want to remain as diplomatic as possible.
- If your client has a few outstanding invoices, it can be helpful to then send them a statement of accounts.
- After this email, consider a phone call to identify the overdue invoices and establish a clear timeline for the payment.
- For a more comprehensive follow-up, or for help navigating a particularly complex situation, it might be helpful to involve your accountant at this stage.
Escalation strategies
If your initial attempts to collect payment haven’t been successful, it’s time to move to more assertive tactics.
>Formal Late Payment Letters: If friendly reminders fail, escalate by sending formal late payment letters outlining the overdue amount, late payment penalties, and potential consequences for continued delays.
>Debt Collection Agencies: Consider involving debt collection agencies as a last resort after exhausting other options.
>Legal Action: Pursue legal action only as a final option after exploring all other avenues as this can be a costly and time-consuming process.
Alternative solution: Financing options
With recruitment invoice financing, agencies raise invoices with clients as they typically would but also submit a copy to their recruitment finance provider. The provider then advances a large portion of the invoice amount, keeping your cash flow healthy. However, this does involve selling your invoices at a discount, and potentially taking on some risk.
How New Millennia can help
Our recruitment financing solutions offer a preferable alternative to invoice factoring. You’ll receive 100% of your invoice value upfront and we’ll take on the financial risk, not you. You can focus on growing your business with confidence that you are risk-free and protected.
A recruitment financing service from New Millennia might be exactly what your recruitment business is missing. Get in touch today to find out what we can do for you.
