All small business owners dread that awkward situation: the invoice you submitted six weeks ago still hasn't been paid and you're not sure how to approach the other party to chase up.
Research by Tide shows that small businesses spend one-and-a-half hours per day chasing up late invoices, with the average company being owed £8,500.
If you've sent an invoice, you're entitled to be paid within a reasonable amount of time. According to the government, if a payment goes over 30 days, it's considered late.
But in the balance hangs an important element: the relationship between you and the client or customer. More than likely you don't want to offend someone or lose good business, so how do you chase an invoice, be polite, and maintain your relationship?
A cheaper, but perhaps less detailed, way would be to run a check on the Companies House website, which will show you if a company is being put into administration and a balance sheet. The drawback is that while a company’s trading status is updated quickly, other financial reporting is delayed as people file several months after their year-end.
It’s important to send invoices in a timely fashion too. Accounting software can help speed up the creating of invoices and allow you to chase things automatically.
Be polite, chat about the weather, wish them a lovely evening. Basically, be really, really nice (even if you don't feel like it). Sometimes things just get forgotten about, and a gentle reminder is all that is needed.
There are two reasons why a customer is not paying you. One, they've forgotten or two, they're opportunistically leaving the money in their bank account.
In both of these cases, by politely persisting you'll be at the forefront of your customers' mind when they come to do their pay-run if they had forgotten you.
Wording is also very important. Rather than sending a message like “I want my money now”, you might want to try:
“I would be very grateful if you could advise when we can expect to receive payment for these invoices.”
Including the number of days an invoice is overdue can also help.
Your chaser should both reflect your customer as well as the severity of the situation. Your chasers should be on a scale of firmness, whilst maintaining politeness, from early overdue to late overdue.
You can't expect to see results and maintain positive relationships with your customers by sending the same message to every customer for all manner of overdue invoices.
Sometimes a customer won’t have paid because something is wrong. By getting in touch, you can sort out any problems that there may be, such as a missing PO number, the wrong contact details or an issue with the work. This is also great for gathering feedback and growing customer relationships.
Make sure you have the facts to hand and clearly and professionally explain the issue. Try to leave emotion out of it if possible. Often the person you’re dealing with in accounts won’t be directly responsible and, while you might be angry, it’s unlikely to help your cause.
This can often lead to a lot of friction in relationships, however, so it should be a last resort and you should have exhausted all other possible avenues.
One option is to escalate the situation by sending chasers to and from people higher up at the company.
If court action is the final resort, you should follow governmental advice as outlined by the Justice Department.
Though discouraging, sometimes the best alternative route to legal action is to either take it as a loss or instruct an external debt collection agency, rather than keeping you away from their other important tasks.
It may have been a laborious process, but it costs nothing to either leave the relationship on a good note or take steps to ensure it continues.
If you have a questions about late payment, ask the experts in our Accounts & Finance forum. If you’re not a UKBF member already, you can sign up for free here.
Research by Tide shows that small businesses spend one-and-a-half hours per day chasing up late invoices, with the average company being owed £8,500.
If you've sent an invoice, you're entitled to be paid within a reasonable amount of time. According to the government, if a payment goes over 30 days, it's considered late.
But in the balance hangs an important element: the relationship between you and the client or customer. More than likely you don't want to offend someone or lose good business, so how do you chase an invoice, be polite, and maintain your relationship?
Onboarding a new customer
Conduct a credit check
It's quick, easy and discreet to perform credit checks via platforms such as Experian, but it will cost you – for instance Experian charges from £25 a month for unlimited company credit checks. This is definitely a good measure if you are wary about a new customer or have a gut feeling that you're unsure whether they can pay you on time.A cheaper, but perhaps less detailed, way would be to run a check on the Companies House website, which will show you if a company is being put into administration and a balance sheet. The drawback is that while a company’s trading status is updated quickly, other financial reporting is delayed as people file several months after their year-end.
Keep on top of your invoices
The sooner you can invoice the better as it means you’re likely to get the cash more quickly, so think about the terms you use with clients.It’s important to send invoices in a timely fashion too. Accounting software can help speed up the creating of invoices and allow you to chase things automatically.
Make sure your payment terms are clear
At the outset, don't be afraid to state what your payment terms are. If you don't tell the client or customer they'll never know. If you’re selling business to business, make sure the terms are agreed alongside the other elements of delivery.Chasing a late invoice
Remain friendly!
Whether you're face to face or engaging digitally, there are things you can do to engage your customer in a friendly manner.Be polite, chat about the weather, wish them a lovely evening. Basically, be really, really nice (even if you don't feel like it). Sometimes things just get forgotten about, and a gentle reminder is all that is needed.
Consistently, but politely, remind your client
Reminders should contain polite wording but be persistent. You should let a customer know as soon as an invoice becomes overdue and sending weekly reminders after that is a good idea.There are two reasons why a customer is not paying you. One, they've forgotten or two, they're opportunistically leaving the money in their bank account.
In both of these cases, by politely persisting you'll be at the forefront of your customers' mind when they come to do their pay-run if they had forgotten you.
Wording is also very important. Rather than sending a message like “I want my money now”, you might want to try:
“I would be very grateful if you could advise when we can expect to receive payment for these invoices.”
Including the number of days an invoice is overdue can also help.
Your chaser should both reflect your customer as well as the severity of the situation. Your chasers should be on a scale of firmness, whilst maintaining politeness, from early overdue to late overdue.
You can't expect to see results and maintain positive relationships with your customers by sending the same message to every customer for all manner of overdue invoices.
Don't be afraid to get on the phone
Once you've sent your first reminder don't be afraid to get on the phone if you haven't heard from them.Sometimes a customer won’t have paid because something is wrong. By getting in touch, you can sort out any problems that there may be, such as a missing PO number, the wrong contact details or an issue with the work. This is also great for gathering feedback and growing customer relationships.
Make sure you have the facts to hand and clearly and professionally explain the issue. Try to leave emotion out of it if possible. Often the person you’re dealing with in accounts won’t be directly responsible and, while you might be angry, it’s unlikely to help your cause.
How do I take legal action?
You are entitled to take legal action if you're not receiving what you're due within a reasonable amount of time – and you’re also entitled to charge interest. If this is something you’re unsure about, UKBF member Know-it Global has useful advice on how to calculate late payment interest.This can often lead to a lot of friction in relationships, however, so it should be a last resort and you should have exhausted all other possible avenues.
One option is to escalate the situation by sending chasers to and from people higher up at the company.
If court action is the final resort, you should follow governmental advice as outlined by the Justice Department.
Though discouraging, sometimes the best alternative route to legal action is to either take it as a loss or instruct an external debt collection agency, rather than keeping you away from their other important tasks.
Keep in contact following payment
If you do get the result you want, make sure you send one last final message: “Thank you.”It may have been a laborious process, but it costs nothing to either leave the relationship on a good note or take steps to ensure it continues.
If you have a questions about late payment, ask the experts in our Accounts & Finance forum. If you’re not a UKBF member already, you can sign up for free here.
