You’ve completed the work you were hired to do, established your payment terms, and sent an invoice to your client. However, the payment is past due, and you have not received a response or an update. Does this sound familiar?
In the UK, it is estimated that SMB owners are chasing up to five overdue invoices at any one time. For small to medium-sized businesses, overdue invoices can really affect cash flow and have a knock-on effect in other business areas, including paying staff and affecting personal finances. After all, everyone has bills to pay.
But chasing up unpaid and overdue invoices can be time-consuming, and in a world where time is money, you are wasting more money by chasing up a debtor on top of what they owe.
Set Clear Expectations From The Beginning of The Relationship
Although no one enjoys discussing money, setting the client’s expectations by discussing your payment terms early on can help avoid problems later on.
Explain when you will invoice the client and the terms of payment. Most small businesses prefer a 30-day payment term, while larger businesses may be satisfied with a 60-day payment term.
Some businesses will also require a portion of the cost to be paid in advance. If you need to cover the cost of materials, it is within your rights to require an upfront payment and the remaining balance on completion.
You can also discourage late payments by including interest terms in your contract. The Late Payment of Commercial Debts (Interest) Act of 1998 allows you to do so. This law allows you to claim up to 8% interest on unpaid invoices. Just make sure you make this very clear to your client when you first start working together.
Finally, ensure that the information on your invoice is correct. Incorrect information can cause delays or disputes, so always double-check amounts, dates, and client information before sending.
Schedule Reminders
If you are manually sending emails with updated invoices for late payments, this will be time-consuming. Instead, use accounting software that can be set up to send out repeat emails and chase invoices automatically if payment hasn’t been received.
It isn’t rude to ask for money you are owed, no matter how stiff your British Upper Lip. But, in fact, it is ruder to expect people to do the work for you upfront and then not pay.
Remain calm and friendly in the first instance, after all, it is usually the case that they haven’t realized the payment is due or overdue rather than trying to get away without paying.
Address the client in a friendly and casual manner to give them a gentle reminder to make the payment. You can find many easy-to-use email templates online to help you draft the perfect letter or email.
Send a Statement
If you receive no response or payment following your emails reminding your client of their due payment, then you can move on to sending them a statement featuring a breakdown of the work you have completed and the money they currently owe you along with any upcoming charges due to be added and contact you have initiated with them.
It is important to try and remain friendly when sending any communication as if they perceive your tone to be hostile; they may hold out on paying for even longer. This is something you want to avoid at all costs.
Make A Phone Call
It is much easier to ignore an email than reject a payment request made over the phone. If you’ve followed the advice above and still haven’t received the money, you should contact the client to find out if there’s a problem with the payment.
It’s possible that the client has cash flow issues of their own and needs more time to pay. However, putting the client on the spot in this manner should provide you with a better understanding of their intentions and assist you in deciding what course of action to take next.
Your Next Steps
Your next steps can involve continuing to chase the client for payment. However, this should be done periodically and in set timescales, for example, once a week every Monday.
You can then look into whether or not legal action is the best route for you to take. If you have no luck contacting our debtor, you can use a Debtor Tracing Service to find them via legal routes to ensure your requests for payments are going to the right place and not an old email or home address.
You can send a Statutory Demand. This is a formal, legal letter that has been sent to the client, and they have 21 days to respond. If the letter is ignored, you have the option of taking them to court.
Ignoring a statutory demand carries serious consequences, as it increases the likelihood of a company being liquidated. If you find that you are being ignored, you can try to wind up a company if their debts exceed £750.
If they owe more than £5,000 in debt, you can make them bankrupt in a more serious effort. In both cases, you must demonstrate that the company is unable to pay its debt to you.
You can also choose to engage the services of debt collectors. They typically charge a fee of around 5-15% of the sum owed, and some even work on a no win no fee basis, meaning you don’t pay unless they secure payment. Other options include taking them to the small claims court or applying for a CCJ against them.
You must remember when dealing with people who are avoiding paying you for services or products provided that despite their actions, you need to remain courteous at all times when sending follow-up communication demands for payment.
In addition, you need to avoid making threats or harassing them as this could work against you in legal proceedings to claim back what you are owed. Cases that require you to take legal action for payment are not as common as you think, and usually, clients will pay the money they owe as soon as they are reminded it is due.
