Top tips for dealing with late payments

by Startacus Admin

If you’re counting on receiving a payment, days or even months after the due date, it’s time to take action. Here's some handy tips for dealing with late payments.

If you’re counting on receiving a payment, days or even months after the due date, it’s time to take action. Before beginning the chasing up process, it’s important to remember that you’re asking for what is rightfully due for your services. Requesting for an overdue payment should not feel like a taboo subject - you wouldn’t expect to receive a service for free, so it’s time the customer settled payment.

The next steps which you can take to pursue the payment will depend on the overdue total, the timescale in which the payment is overdue and your relationship with the customer. Some customers may respond fast to your request, and some may fail to do so. The extremity of each recovery step will depend on how deep in the late payment cycle the customer is and their resistance to pay.

Due Diligence

If you suspect that a client may fail to make payment or is not serious about paying for your services, carry out some due diligence. This will either clear up the bad air or confirm your suspicions, establishing the true intention of the customer.

Specialist software can be used to perform credit checks on other businesses to ensure that you are trading with a reliable and cost conscious customer. If you are a small business without access to such software, you can use the Companies House website to access company information, including company accounts and director details. By carrying out due diligence, you can ensure that active steps have been taken to protect the business against bad debt.  

Bad debt can be detrimental to the business and negatively impact cash flow. The more bad debts recorded on the books, the harder it will be to secure finance from lenders. Bad debt is an indicator of unreliable income, worthless assets and a waste of resources. Protecting your business from this can help avoid future cash flow problems and assist with profit forecasts.

Send a series of payment reminders

Prior to the payment due date, get in touch with the customer with a gentle reminder which states that the invoice is due soon, including your payment details. If the due date has passed and the payment hasn’t yet been received, send a prompt reminder to the customer which is slightly more serious in tone.

In addition to the reminder, you can make a courtesy call which may remind the customer to make payment as they have had direct contact with you. If you have a subscription to bookkeeping or accounting software, you should be able to track unpaid invoices and automate payment reminders. You can create a reminder template which will be sent to the customer on your behalf, saving you time.

Be reasonable, flexible and human

It’s important to remember that the payment may have been missed due to human error, so be reasonable and flexible, allowing the customer to rectify the issue. The customer may be away from the office due to a meeting, annual leave or a personal emergency. Factors that are out of the customer’s control may interfere with their ability to make payment, such as a technical error. If the excuse is legitimate and true, you will be expected to have a level of understanding.

Set the standard early

Is it important to set the standard early by attaching the payment terms to the invoice and highlighting any late payment conditions early on in the customer journey. If you charge a late payment fee or rolling interest, make this clear as this may deter the customer from delaying payment.

Confirm the end recipient

If you are dealing with a project manager or front line staff, ensure that you are contacting the correct person in relation to making payment. The individual placing the order may not be reasonable for making payment, so ensure that you have the correct details for the finance department or the employee responsible for this.

Small Business Commissioner (SBC)

As a one-man band or small business, if you experience payment issues when trading with a medium or large sized business, you are able to lodge a complaint with the Small Business Commissioner (SBC). The SBC is able to tackle non-payment on behalf of small businesses and has ‘name and shame’ powers which can be used to name large businesses that are notoriously known for making late payments. The complaint criteria can be found here on the Small Business Commissioner website.

Turning to a Debt Collection Agency

If you are seeking a large payment or you are pre-occupied in the running of your business, this may justify using a debt collection agency. They will typically take their cut upon recollection of the debt or you can reassign the debt to the agency for a lump sum, minus their percentage. It’s important to remember that debt collectors are not bailiffs, so they will not be able to repossess items from the household of the late payer to compensate for the debt.

Mediation

If the process turns sour and the customer outright refuses to make payment, a mediation service can help cut straight to the point and eject any hostility directed towards you. A mediator is a trained, neutral professional who can helpparties come to an agreement and reach resolution. This option is cheaper than making a court claim or hiring a solicitor and the fee typically depends on how much you’re owed.

It’s vital to track payments, as by failing to do so, your business could eventually rack up debt as a result of unreceived monies. Disruption to cash flow as a result of late payment could leave you out of pocket, unable to replenish stock and pay employees. There are several steps which can be taken to recover outstanding payments; you should seek specialist advice if you are unsure about which step to take and how this will affect your business.

Written by David Tattersall, Head of Client Relations at Handpicked Accountants. Handpicked Accountants connects small businesses, contractors and freelancers with highly reputable accountants in your local area. 

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• #debt
• #payments
• #finance
• #debt collection

Published on: 12th February 2019