It’s hard to think of something else about running your own business that causes as much stress and anxiety as someone who you’ve provided goods or services to who, for whatever reason, keeps putting off paying the invoice you sent them.
There’s something very peculiar about our relationship to money. If someone is hanging on and hanging on refusing to pay us, it feels, to many of us, like a personal attack on ourselves as a person. Somehow, the person who owes money to us has the power and there’s nothing we can do about it.
We’re pleased to tell you that there is a lot you can do about it and, in this article, the Financial Management Centre team talk you through a strategy for chasing overdue invoices. In most cases, while you’ll still have to fight for your money, you’ll get it but is it worth taking a debtor to the Small Claims Court if you can’t get satisfaction?
Use good credit management practices in your business
Running a business is difficult and, in the early and vulnerable first two or three years, issuing invoices and chasing them for payment are two responsibilities brand new to you on top of a whole load of other unfamiliar responsibilities you have as a company owner. Take it from us but many of our clients who have been trading for three or more years have often said to us that they wish they knew at the start what they knew now because life would have been a lot easier.
Take five or ten minutes out of every day to issue any invoices as soon as they become due. When someone first buys from you, make it absolutely clear to them the payment terms you expect them to comply with. Remember that this is your business and it’s up to you who you choose for your customers and that it’s absolutely your right to dictate your payment terms. If they’re not happy with what you offer, thank them for their interest and walk away.
Check your online bookkeeping platform every day so that you’re fully aware of the invoices you have out and when they’re due for payment. Having this knowledge means that you’re far more in control of your business and you have a much better idea of how well you’re doing.
Remind your customers that they are due to pay you three or four days before the due date on the invoice. If payment is not received on the day you’re expecting it, phone up your customer and ask them to make payment straight away. If payment is still not forthcoming, keep emailing and phoning your customer every other day.
Your customer may be experiencing financial difficulties. There may be something about what you’ve provided them with that they’re not happy about but they’ve not told you yet. Keep the channels of communication open and try to find out as much as you can about why you’ve been paid yet.
Stack the deck in your favour if possible
Especially on work where you may be financially exposed if payment is unusually delayed, ask for a deposit. Never ever take work on where, if a problem arises, your continued ability to trade is jeapordised.
For clients who buy from you on a regular basis, you may choose to insist that you collect payment by direct debit. GoCardless provide a competitively-priced service which pays the money due for the work you do for your clients into your account seven days after you issue the invoice.
You should also open a merchant services account with a provider like Stripe or PayPal. This may be the biggest advantage you can secure for yourself in speeding up payment. According to Xero, invoices offering payment by bank transfer or cheque are, on average, settled in 38 days by British businesses. If a credit or debit card is offered as an additional payment method, invoices are settled in 19 days – just half the time. Read more about that at the Xero blog.
When you’re phoning customers up chasing payment either on the due date or after, you can offer your customer the opportunity to pay by card straight away. Be calm, be pleasant, be firm, be confident, and if they say to you “I don’t have my card to hand”, reply back with “It’s OK. I don’t have to be anywhere right now. I’ll hang on while you fetch your card”.
Charge interest on your overdue bills
The Late Payment Act extends the right to you to charge interest and compensation to clients whose payment is unreasonably delayed and where you can be sure that the customer is not disputing the invoice.
You can use the online calculator at Pay On Time to work out what you can claim from your customer.
Inform your customer by email and in writing that you’re exercising your right to charge interest and compensation and that if payment is not made in full by a date that you choose that the next step is to take your customer to the Small Claims Court.
The Small Claims Court
You can use the Small Claims Court to chase any debt under the value of £10,000. There is a charge which you can add to the amount that you pursue for the customer however the fees are rarely paid – in most cases, you’ll just have to accept it as an unfair cost of doing business.
You can do this yourself without involving a debt collection agency or a solicitor by logging your case at Money Claim Online. The form takes about 30 miutes to fill out. Once submitted, the courts will send a letter to your debtor and this, in many cases, spurs debtors to pay up.
If your client does not pay, the court will award a County Court Judgement against your client ordering them to pay. There is no guarantee that they will pay however, if they don’t, you have the booby prize of knowing that it will be difficult for your debtor to obtain credit for a significant length of time.
A few more important pointers
You should keep a copy of all of your correspondence with your client because the Small Claims Court will want to see evidence that you have given your debtor every opportunity to make payment. If you send out letters, make sure you do so using Recorded Delivery.
Make sure that you’re chasing the right person and organisation for payment. It’s also wise, from the start, to make your invoices absolutely clear and easy to read and that how customers pay and when payment is due is clear to see on your invoices.
And be strong. If you went into Greggs to order one of the new vegan sausage rolls paying with a £10 note but you were offered no change, you’d kick up a fuss. Of course – it would be mad not to. Stand up for yourself, be firm in getting your money, and if someone upsets you one too many times with their late payment, walk away from or demand pre-payment on all future business.
We’re always here to help here at the Financial Management Centre. Please call us today on 0800 470 4820 or email [email protected].