Key Guide to Dealing with Late Payments
Late payments and having to deal with late payers is frustrating especially for small businesses. Cash flow is always an issue and receiving payment late and having to chase payers can have a significant impact on a small business.
Contract Terms & Conditions
Ensure that you have informed your clients about late payments and the Terms and Conditions (T & C’s) involved. Highlight the costs that can be charged on late payments and costs if action needs to be taken. By making a point of agreeing to these terms at the start of a client relationship, you can be assured that fewer disputes may arise in the future.
Follow up and Communicate with Clients
It is important to invoice on time and send the invoice by email. Always follow up on your invoice and make sure that the client is happy and has received it. If you speak to the person who is responsible for ensuring payment, then you will minimize any excuses being made and negate the chance of late payment.
Frequently clients will make excuses around issues of not receiving an invoice or being unhappy with the amounts on it. Ensure that you maintain good communication with your clients so that any issues surrounding an invoice can be cleared well in advance. This will ensure that you will be paid on time. Note that if any issues are made about the invoice, it is best to keep written notes about points resolved or agreed upon. This will provide evidence which can be used if any issues arise surrounding payment.
Dealing with Client Excuses
Late payers often make up excuses for late payment. A solution to the most frequent shall be examined.
|Clients excuse||Solution to problem|
|The client never received your invoice||Confirm that the invoice was received and use email as it gives you a written date and time sent|
|The accounts system is not functioning||Confirm that the invoice has been received and get a payment date from the client showing them that you are patient but firm|
|The cheque was sent in the post but must have got lost||Give your clients other options to pay i.e. electronically or by bank transfer or even PayPal. If a cheque gets lost than make sure they use these other payment options|
|Responsible person is off sick/on leave||Ensure that you have good communication links with the person responsible for payment from the outset of the business relationship with regular contact being made with them|
|Company under financial difficulty||If full payment cannot be made you may want to accept monthly payments or a smaller amount until they are able to pay you to reduce your risk|
|Client has not received payment from own supplier and cannot pay you yet||This is not a problem that should impact you and your business. You need to remain firm and request payment as soon as possible and inform them that further action will be taken|
Send out a reminder to clients if a payment is late. It is best to call them to discuss the late payment. If they do not pay when promised then you must remind them of the T & C’s of the contract regarding late payments and costs and interest that will be incurred. Work completed must be paid by the client in full and under UK law late payment penalties can be enforced.
If payment is late and the client continues to make excuses than you will need to remain firm and warn them that legal action will be taken unless payment is made immediately. It is best to be diplomatic about the situation but do not waiver about the type of action that will proceed if payment is not made to you. It is important to try and minimize this type of situation by dealing with the client in a professional way. You could try and get payment quickly by wavering any interest or further action being taken if payment is made immediately.