Late payment is something all small businesses will have to deal with at some point. Indeed, the latest figures show that 27% of all invoices in the UK are paid late! Apart from the financial impact and wasted time, late payments are also a nuisance because you can often feel powerless to act on them.
What can you really do if one of your best or biggest clients has an overdue invoice? You don’t want to damage the relationship by being pushy, and it’s not as if there is robust legislation in place to protect you…
There are, however, several concrete steps you can take to stop late payment. Read through this guide we’ve put together to find out more!
A few things to ask before sending your invoice
A common excuse for late payment is that there is something wrong with the invoice. Either there is information missing, it went to the wrong person/ department, or it never turned up. Here’s three questions to ask your customer before sending them anything.
• Do they use a purchase order system? If yes, make sure you get the necessary information from them and include it on your invoice before sending.
• What is your customer’s preferred invoicing method – email, post, or maybe even an e-invoice? Aligning yourself with their processes will ultimately result in a faster payment time.
• Who is the right person to send the invoice to? The person you deal with may not always be the same person that pays the bill. This is especially true in bigger organisations, with various departments and defined processes. Get the right name and contact details early on.
Research your customers
Assuming your customers are also businesses, it may be worth doing a background check on their creditworthiness. There are a few tools you can use to do this.
• Duedil – A great tool for providing a concise financial overview of your potential or existing clients. You can find out about their credit rating, historical financial data and company reports. There’s a free version available if you want to check it out.
• Experian – Quite similar to Duedil, and you can try it out for free for 48 hours. If you add your customers here Experian will send you an email if their credit rating changes, which is a good way of alerting you to possible issues with payment.
Know your rights
Once an invoice becomes overdue you have a right to charge interest on it. This is what is known as ‘statutory interest’, and is currently set at 8.5%.
If your customer is ignoring your attempts to contact them and resolve the outstanding payment, then you may also want to consider legal action. This is quite a drastic step, and it does risk impacting any future customer relationship, so think this one through first.
You’ll need to send your customer a ‘Letter Before Action’, which is the first step before commencing legal action to recover a debt. Once you have sent this it is time to seek professional legal advice and take your claim to court.
Good business practice is better than legislation
Difficult as it may seem, it’s also worth taking a customer-centric approach to late payment. Customers are, after all, the lifeblood of your business. Help them to help you by making it as easy as possible for them to pay your invoice.
And though having to chase overdue payment is annoying and time-consuming, doing it with a smile on your face is much more likely to yield success. You catch more flies with honey than vinegar.
This article was originally published on the Zervant Blog