Like so many SME’s in the UK, the majority of our small business clients have found recent months tough going. We always try to coach our customers on the importance of managing the cash flow of their business, and post coronavirus, this will now become more vital than ever before.
One of the best places to start is to ensure you have in your possession, all the money that is owed to you. Unpaid invoices can interrupt your cash flow and have a detrimental knock on effect to your entire business if it’s not nipped in the bud quickly. A halt in cash flow may leave you unable to pay employees, suppliers or vendors thus damaging your reputation, and leaving you paying late fees. On top of this, chasing payment that should be sat in your bank account is simply a waste of your precious time that could be well spent elsewhere.
In this blog, we share our advice on how to:
- a) Avoid unpaid invoices in the first place.
- b) Chase late payers without damaging your relationship with them.
Pre-empt the problem to avoid dealing with unpaid invoices altogether
Late payment maybe commonplace for many small businesses but you are by no means powerless when it comes to unpunctual clients. You can try and minimise late payment from clients to ensure you get paid as quickly as possible. Here’s how…
1) Do your research. Make sure new clients are genuine by running a credit check before you commit to them. Credit checks will provide the reassurance you need in order to start up a business relationship with them – you may not want to risk entering into a business agreement with a company that has a poor credit history. It is always a good idea to carry out some basic checks on the Companies House website too.
2) Set clear payment terms right from the off. Ensure your customers are crystal clear of your payment policy. This isn’t always easy as it can awkward talking about money so early on in a relationship, but it is important to manage expectations to avoid problems at a later date. State what your payment terms will be (i.e. how many days will they have to pay? What day of the month will you invoice?) and explain the consequences of late payment (i.e. will you charge interest? How much will you charge?). You may want to consider asking for some of the payment up front or request a staggered payment so only a small amount is due upon completion of the project. It doesn’t matter what your terms are, you just need to make them clear to your customer to ensure your cash flow remains fluid.
3) Make it easy for customers to pay you. Setting up an online payment option will make is super easy for customers to pay you resulting in you getting your cash quicker.
4) Can you offer an incentive for early payment? Obviously this will depend on the type and amount of work, but offering a discount for paying you early can be very motivating for customers to part with their cash before the deadline – but don’t forget to state that the incentive will become invalid once the deadline has passed when putting your terms of payment together.
Chase late payers without damaging your relationship with them
If you haven’t manged to evade late payers, you may want some advice on how to chase them without being rude? We suggest:
1) Be confident. Chasing invoices is all part of being a business owner. If you have completed work that the customer is happy with, then you are entitled to get paid for your services within the timeframe stated. You should not feel bad for politely reminding customers of this if they haven’t stuck to their end of the bargain.
2) Check things your end. It may sound basic, but did your invoice actually get sent in the first place? It is always best to check before you approach a customer. It can be hard to keep track if you are constantly creating invoices and sending them manually each time, which brings us nicely onto our next point….
3) Digitalise your entire billing and chasing process. Automating your invoicing and payment process will undoubtedly save you time and resources. There are so many accounting applications available now that can really help streamline things for you. The Bells Accountants team are always happy to advise you on which piece of software you should use and provide you with the necessary training if needed.
4) Send polite reminders. Your initial payment reminder only needs to be a short, polite, prompt. Simply stating that payment is overdue is often enough to spur a customer into action:
Subject: Overdue payment to [insert your company name] – [insert invoice reference number]
Hi [insert customer name],
Just to let you know that invoice no. [insert invoice number] was due for payment on [insert date] and I just wanted to confirm you received it? I have attached the invoice again for your convenience. I would be grateful if you could you just confirm the invoice payment is in progress.
[insert your name]
If an email doesn’t work, it maybe worth following up with a phone call to ask if they have received your previous email(s) regarding an overdue invoice. You can clarify if they have any issues with the invoice that you can chat through while you are on the phone and find out when payment can be made.
Make sure you make a record of all your correspondence (both email and phone) to include who you chatted with, and the date and time of your communication – this will be very helpful if you have to escalate things further.
If payment is still not made (or at least in progress) after a 30-day window, you will need to be a little more formal and remind the client of the payment agreement with you and the consequences:
Subject: Overdue payment to [your company name] – [insert invoice reference number]
Hi [insert customer name],
Further to my previous email to you on [insert date], I am contacting you again on behalf of (your company name) with regard to outstanding invoice [insert reference number] for the amount of [insert amount].
As per our payment agreement terms, we are entitled to charge X% interest per day/week of an invoice going unpaid. I would prefer to avoid this, so if there are any issues please let me know as soon as possible. I have attached the invoice to this email again for ease of reference.
[insert your name]
At this point, if no payment is made, you will need to send a final reminder stating that if the invoice is not paid you will begin legal action:
Subject: Final reminder to [your company name] – [insert invoice reference number]
Dear [insert customer name],
Further to my previous correspondence, I am contacting you once again on behalf of [your company name] with regard to the following outstanding invoice:
[insert invoice ref number] / [insert invoice balance]
This invoice was due on [insert due date] and remains unpaid.
Given the lack of response on your side after several attempts to contact you, we will be need to begin legal proceedings against you without further notice, unless payment is made to [inset your company name] within seven days of receiving this letter.
I have attached a copy of the invoice for your reference.
[insert your name]
How many reminders you send to a customer will be your call and will likely depend on the amount due, your relationship with the customer and how your company prefers to operate. You will know when to stop chasing late payment and when/if it’s necessary to take things further. You will need to weigh up if it is worth the time, energy, and money to continue to hunt down an invoice, particularly if it is for a small amount of money.
As always, if you are a small business in need of financial advice or support, we’d love to help you. Just drop us a line and we’ll do the rest.