Any business owner knows that timely payment is essential to keeping the business running smoothly. However, there are always a few customers who don’t pay their invoices on time, or even at all. When this happens, it’s important to take action quickly in order to minimize the impact on your business.
The first step is to send a reminder notice. This can be done by email, letter, or even a phone call. If the invoice is still unpaid after the reminder notice, the next step is to send a collection notice.
This should be done in writing, and it should state clearly that payment is overdue and what action will be taken if payment is not received within a certain timeframe.
Finally, if all else fails, you may have to take legal action in order to get paid. While this is typically a last resort, it may be necessary in order to get the money that you’re owed. By taking these steps, you can help ensure that your business stays afloat despite a few unpaid invoices.
This is absolutely true and maintaining a healthy cash flow should be one of your main focuses while running a small business. One thing that can affect cash flow in a negative way is unpaid invoices, which kill around 50,000 small businesses in the UK each and every year.
You’ve likely already heard every excuse in the book, right from ‘I’m paying it as we speak’, to ‘the payment must be pending’.
Whatever the excuse you are faced with, it isn’t right for you to be placed into a situation like it.
How to collect unpaid invoices from customers
As a small business owner, you’re likely no stranger to the occasional customer who doesn’t pay their invoice on time. While it can be frustrating to chase down payments, there are a few steps you can take to increase your chances of getting paid. First, make sure that your invoices are clear and concise. Include the total amount owed, the due date, and your contact information.
You may also want to include late payment fees or interest rates to incentivize prompt payment. Second, reach out to your customer as soon as the invoice is overdue.
A polite email or phone call can often prompt them to take action. Finally, if all else fails, you may need to consider hiring a collections agency. While this option should be a last resort, it can be effective in getting tough customers to pay up.
Cash is king for any business, and the collection of unpaid invoices from customers is the first step in the process of ensuring that the business has a positive cash position.
We look at ways that you can ensure that outstanding invoices are collected by understanding what credit control processes are available to your team.
Tips for Collecting Outstanding and Unpaid Invoices
Once you have delivered your product or service, the invoice has been written and sent, payment should be prompt and within the terms agreed. There is simply no excuse for having an invoice unpaid, though that won’t stop certain people from doing so. When you are faced with an unfortunate experience, you need to understand how to handle it and get collect the outstanding cash that you rightfully deserve.
With this thought in mind, we want to walk you through some of the steps you can take in order to avoid unpaid invoices and keep your cash flow as healthy as possible. We’ll now run you through a list of our main points and hopefully help you along the way.
Time to chase up those invoices
Never be afraid from asking someone where the payment is that they owe you. Nobody should expect to not have to pay for an item or service, regardless of where they have purchased it from; this is no different when it comes to you and your business venture. Chase people up constantly and ensure that payment is never going to be late. A little bit of pressure from your end can go a long way with dealing with slow paying customers.
Once again, never be afraid of asking for an update on where payment is. It is owed to you for the service you have provided and therefore you have every right to go out and look for the cash that your business deserves. We always suggest you send a copy invoice with each correspondence.
Send out reminders and statements
It is always great practice to send an “invoice is due” reminder a couple of days before the payment terms are due to expire. It’s extra administrator work, indeed, however it’s always necessary, especially if the customer has a background marked by late receipt instalments.
On the off chance that your customer is a small business as well, there’s a possibility it’s simply escaped their attention, so it’s in every case great to give them a prod and get things moving.
Suppose the invoice due date passes without even a superficial “sorry about that” email. Circle back to the customer when the invoice is past due — how long you leave it is up to you. In any case, don’t leave it excessively long; recollect, this cash is owed to you, so don’t be reluctant to send them agreeable and reliable updates.
Continuously keep things friendly; you would prefer not to harm your relationship with them. You may rely on their custom again in the future so don’t go being too aggressive and insult them.
Once you have already sent out a few reminders, begin to follow each email up with a phone call. If you are not hearing back just contact them in any way possible and force them to give you their attention.
If an email is being sent to start the process, the audit trail of evidence has started, you can use if clients say you didn’t remind them (not that you should have to). Something as simple as the following is fine:
‘Hi, Sarah,
Just ta quick email to let you know that invoice number 200 is now due for payment. I’d appreciate if you could settle at your earliest opportunity. A copy of the invoice is re-attached for your reference.
Many thanks,
Keith’ – Accounts
Should you wish to use our Unpaid Invoice Letter Template, it can be found here.
Offer your customer different approaches to pay
On the off chance that your customer is battling to make the instalment in full, consider offering them the opportunity to pay in portions. These aides represent unforeseen income issues at their end, and you still eventually get your cash, regardless of whether it isn’t as you had it first arranged.
Try calling the customer and asking to make a payment on account towards the outstanding amount. Ask if they can make a payment on a debt or credit card while on the telephone, this way the payment is made and there is no excuse to wait for it to land in your bank account.
Issue an email about the subsequent stages
If you’ve still not heard from your customer with respect to this specific issue, you can give an email itemising the following stages. Regardless of whether you’re wanting to follow your invoice through the small claims court or employ a debt collection agency, format the way you intend to take to recover your overdue payments.
Once more, stay amicable and respectful, enumerating that you wish it didn’t need to go this far and that in case they’re ready to make payment rapidly, you will not have to continue. Obviously if you have had to go through all these lengthy steps, you may wish to consider working with them again in the future, as they may continue to be just as unreliable.
Hire a Debt Collector to Collect Unpaid Invoices
Sometime people just will not pay or cannot pay, when it comes to this stage its best handing it over to a credit collections agency or hire a debt collector. By using these types of firms it will place an outstanding invoice in collections is a route many small businesses choose to take.
Credit collections agents knows what they are doing when it comes to debt recovery and will relentlessly follow up with your client until your debtor settles the invoice. Debt collectors are paid on success usually as a percentage of what they collect, it has also been known for them to sometimes also charge a fee. Keep this in mind before determining if this avenue is right for your business.
Avoid late invoices in the future
So, now you’re aware of a few of our main tips, how can you avoid receiving late payments in the future? Well, things get a lot more straightforward and a lot of it is all about gut instinct and working things out logically.
Go with your gut
You can claim interest and debt recovery costs if another business is late paying for goods or a service. The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ – this is 8% plus the Bank of England base rate for business to business transactions. You cannot claim statutory interest if there’s a different rate of interest in a contract.
It tends to be interesting on the off chance that you need the cash; how is it possible that you would perhaps dismiss any chance to bring in cash? Trust us; it’s occasionally not worth the issue. On the off chance that you get the inclination this customer has helpless correspondence, or you simply get a feeling that this will not be a decent relationship, walk the alternate way.
Zero in on building your business with legitimate, dependable customers.
Impart your payment terms from the start
Offer your payment terms from the get-go in your customer relationship and ensure they’ve consented to them. For instance, on the off chance that you have a 14-day payment period, perceive that not every person could possibly make this tighter than-regular turnaround. If they can’t consent to your payment period, ask what their typical period is (payment periods can be anyplace within in the range of 30 and 120 days). The more you know all along, the more you can conjecture your funds.
You can consider requesting a level of the full receipt forthright before you begin working and afterward at achievements all through the task – this is another extraordinary method to guarantee you’ll get paid for the work you convey.
On the off chance that they won’t pay at every achievement, stop all work for them until they pay.
Sign an agreement
On the off chance that a customer will not sign an agreement, that is a warning not too far off. Is there any good reason why they wouldn’t sign an agreement? An agreement ensures the two players. So run for the slopes if they out and out deny signing any form of agreement, as you do not want any part of that.
Getting your customer to sign an agreement can give you the certainty that they’re probably going to pay you when you’ve conveyed the help. In your agreement, remember to set out the agreements of your work, expectations alongside dates and data about your payment interaction.
While making future agreements, you could consider including late payment expenses; for instance, if the payment is late following 30 days, You can claim interest and debt recovery costs if another business is late paying for goods or a service. The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ – this is 8% plus the Bank of England base rate for business to business transactions. You cannot claim statutory interest if there’s a different rate of interest in a contract.
Example
If your business were owed £1,000 and the Bank of England base rate were 0.5%:
- the annual statutory interest on this would be £85 (1,000 x 0.085 = £85)
- divide £85 by 365 to get the daily interest: 23p a day (85 / 365 = 0.23)
- after 50 days this would be £11.50 (50 x 0.23 = 11.50)
Deliver your service on time
At the end of the day, you cannot expect or demand payment on time if you yourself are not providing clients with items or services on time. If you are slow to do your part, then how can you expect the other side to behave differently. Set the tone early on about how you are going to get things done and then and only then can you demand the same thing from your customer base.
Conclusion
Chasing unpaid invoices can be a tricky situation, often requiring careful management. It’s important to ensure that all invoices issued are clear and include in detail the value and timeline of payments due. Having a proper system in place to track payments and follow up on those that are overdue is an essential step in maintaining successful collections.
In some cases it may prove beneficial to emphasize the importance of adhering to payment deadlines with clients at the outset of a new agreement. No matter what approach you take when chasing unpaid invoices, having respect for yourself and your clients is key.
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.