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The delicate dance of chasing overdue invoices

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    Francois Badenhorst

    Francois Badenhorst Deputy Editor Staff Member

    Posts: 86 Likes: 16
    2 |

    It was with faint bemusement when we looked at UKBF’s site analytics and noticed a seemingly innocuous thread from 2012 still performing exceptionally well.

    “I have a client who has overlooked an invoice due to be paid about five working days ago,” reads the original post. “She’s a regular client but a bit formal in character so any help on how to word my reminder email would be appreciated.”

    The enduring appeal of this thread not only speaks to how pernicious the issue of late invoices is - but also how delicate the procedure of chasing them is.

    On the one hand, getting paid is the ultimate core of any business. We know that in the UK late payment of invoices is, to quote Donald Trump, “a total disaster”. A recent report from Siemens Financial Services estimated late and slow payment cost UK SMEs around £250bn in liquid cash flow.

    So it’s a matter of dire consequence. Chasing invoices is an absolute necessity. But it’s also a fine balance. As the thread shows, many UKBF members struggle with how to chase without damaging relationships.

    You don’t necessarily want to go nuclear and ruin a good business relationship. But you also don’t want to be a doormat.

    Steven Renwick, the founder of Satago, an invoice factoring company, has spoken – and written – at length about late invoice payments. Satago’s existence, says Renwick, stems in large part from the difficulties his family’s business experienced getting their invoices paid on time.

    “We’ve now sent hundreds of thousands of these late invoice reminders,” says Renwick. One of the most important lessons from this, says Renwick, is to not only start chasing it once an invoice is late. Sending a gentle reminder seven days before an invoice is due is a nice, cordial way to get the process moving.

    “A lot of people think it’s about chasing overdue invoices but one of the most consistent bits of feedback we’ve gotten is that it’s the reminder that’s sent seven days before the invoice is due that has the biggest impact,” he says.

    This reminder can sometimes even get you paid early because the person receiving the email assumes the invoice is due now, says Renwick, who posted regularly on UKBF during the business’ inception. “Or, if there’s any lingering problem with the invoice, you can get it sorted before it’s due.”

    Of course, this prompt may not pay dividends. The next step would be to send a reminder five or seven days after the invoice is due. “It’s just to check what’s happening,” says Renwick.

    “But in the subsequent ones that they send, we suggest to our customers to simply state: ‘This invoice is overdue. Under the UK’s statutory late payment regulations, we would be able to charge you the following late payment fees.’”

    That acts as a little bit of a stick to gently encourage people to pay. But, as Renwick also notes, there’s only so much that emails can do. “I always emphasise that the emails are a tool to complement your own credit control. If someone is getting to 45 days overdue, and you’re not getting on the phone – you’re not doing it right.

    “You can ignore someone’s email. But pulling the wool over someone’s eyes on the phone is much harder. So you really need to get in there and speak to people.”

    Once you’ve made every reasonable effort to get paid (and nothing has worked), it’s most likely time for your solicitor to send a ‘letter before action’ (LBA).

    As Lovetts Solicitors wrote for UKBF last year: “The purpose of the LBA is to give the debtor official notice that legal proceedings are imminent. In some cases the LBA acts to jolt the debtor into paying; therefore extinguishing the need for legal action.”

    According to Dean Talbot, director of Small Claims Assistance and UKBF member, people are generally reluctant to take the legal step until the business relationship has irrevocably broken down. “Obviously, while an invoice can make or break a business,” he says, “it’s not as profound an impact as stifling, say, a 25 year business relationship”.

    Talbot calls the LBA a “warning shot across the bow”. “The letter should detail what you will put in your court proceedings if they don’t pay and then you give them a reasonable time to pay, usually 14-21 days.

    “It’s important to be seen as having given them the opportunity to respond because you can produce that letter as evidence that you were fair.”

    If there’s no engagement from the payer, then the next stop is likely litigation. “It’s a common misconception. There’s no such thing as a small claims court. There’s a small claims track which is a process adopted by the County Court. The County Court deals with claims of any value but, generally, the amounts will be less than £50,000”.

    This may seem like an unpalatable step but the odds are you’ll never step foot in court. As Lovetts Solicitors pointed out: “On average only 16% of cases are defended, with only 3% ever reaching trial.

    “That gives you a very good chance of achieving success without even having to set foot in a courtroom.”

    Check out the original thread for some templates of overdue payment reminders. Do you have a template that works particularly well? Share it in the comments below!

  2. ben_demotic

    ben_demotic UKBF Newcomer Free Member

    Posts: 2 Likes: 1
    One other avenue which is often over-looked is the engagement of a debt recovery agency. Using solicitors' LBAs is definitely a step which can be taken but a DCA can try to recover the debt before the solicitors get involved, not to mention a cheaper method if successful. Most work with modest fees, even no win, no fee, and can recover interest pursuant to the late payments legislation - without legal action. But even in the event that legal action is required, they should only recommend litigation as a last resort and if there is a realistic chance of the debt being paid, and little chance of it being defended!

    <edit - removed invitation to contact>
    Last edited by a moderator: Mar 31, 2017
    Posted: Mar 31, 2017 By: ben_demotic Member since: Nov 17, 2016
  3. Lawyer

    Lawyer UKBF Regular Free Member

    Posts: 157 Likes: 26
    Posted: Mar 31, 2017 By: Lawyer Member since: Feb 28, 2008