How do you deal with clients not paying on time?

[Scatterbrain]

Hi there,

My first post here.
I run a small business from home with my partner and we have a big problem with our clients not paying on time (I've just joined the forum - sorry if this kind of question has been asked many times).
It seems to be getting worse and worse lately. Out of ten invoices we issued in May, only two were paid on time.

I would really like to know how other small companies deal with late payment?

We do state in our invoices that interest will be charged on overdue invoices, but nobody seems to care and we once re-issued a new invoice with the charge to one of our clients, but they just ignored the new one and paid the original amount.

What is the best accounting practice - to add late payment interest to the original invoice number and resend the invoice, or to create a new invoice with just the late payment interest?

Thanks

 

[andygambles]

Ring them up the day before due and check if they have any problems making payment. Ring them the day it is due and check again and ring them again the day after.

If they know you will keep hassling then it will get paid.

 

[diviachi]

We send another invoice with an overdue reminder sticker to start with. In our experience most people either forget the invoice is due, put it in a pile 'meaning to pay it' or genuinely never received the invoice. We try and email as many invoices as possible now rather than post them because Royal Mail seems to be getting worse and worse at losing things, plus it cuts down on our costs. We find that a gentle overdue reminder gets most paid promptly with a minimum of conflict & time, and we often get an apology.

If they still don't pay they get a phone call next, which is the part that I hate doing - I'm not great at verbal conflict! I've been looking around to see if there's a book of scripts or something that I can use but no luck so far. In fact, if anyone has any sample scripts or recommendations I'd love to hear about them.

Most of the time I get a load of blather and excuses on the phone, but eventually end up getting a payment. I try to get card payments there and then rather than promises of cheques or cash, which are usually just a delaying tactic. Sometimes people are conveniently never available, or on one hilarious occasion suddenly forgot how to speak English. Those we deal with on a case-by-case basis, depending on the type of person and if we think they might get physically violent. They may get a personal visit, phone calls every day (or hour), or a letter from us warning of legal action and interest charges unless the invoice is paid by a certain date.

Luckily we've never had to do it, but our next steps would be either a Letter Before Action or the Small Claims Court. Unfortunately we've had to write off some small amounts before because they just weren't cost-effective to pursue any further.

I agree though, the numbers of late-payers is definitely increasing. It used to be I hardly ever had to chase anyone, now I have 10+ people I have to chase every month. As if we don't have enough work to do!

 

[zaidy88]

Take them to court
I had the same problem (50% of people not paying) so I started taking a small deposit upfront and the people who genuinely want the service will pay the small deposit.
You can charge interest and also compensation for late commercial payment, which is £40.

 

[Ian J]

Out of ten invoices we issued in May, only two were paid on time.

I would really like to know how other small companies deal with late payment?

Much depends on the type of customers that you deal with as many companies dealing with large corporates would be surprised that you had two out of ten that actually paid on time.

 

[MyAccountantOnline]

Hi there,

My first post here.
I run a small business from home with my partner and we have a big problem with our clients not paying on time (I've just joined the forum - sorry if this kind of question has been asked many times).
It seems to be getting worse and worse lately. Out of ten invoices we issued in May, only two were paid on time.

I would really like to know how other small companies deal with late payment?

We do state in our invoices that interest will be charged on overdue invoices, but nobody seems to care and we once re-issued a new invoice with the charge to one of our clients, but they just ignored the new one and paid the original amount.

What is the best accounting practice - to add late payment interest to the original invoice number and resend the invoice, or to create a new invoice with just the late payment interest?

Thanks

Can I ask what sort of services you are providing?

Is it the type of service where you could take payment by standing order?

 

[Scatterbrain]

Many many thanks for all your replies.

We are a video production company. So our clients vary from individuals wanting to get their private events filmed to big firms wanting promos or conferences filmed.

We find that individuals generally pay on time, but big companies don't (yes, two out of ten who paid were an individual and a small business like us!!)...

When it comes to big companies we deal with their media team and often don't even know the contact of the account team. When we email the media team regarding the payment they often say "OK we'll pass it on to the accounts team" and never hear back from them. Or the person in the account team is (yes, very conveniently) on holiday!

We've been trying to get them pay 50% deposit if the project is big, but we also struggle to have the deposit paid on time, too! Which is a problem as we often have to spend a lot of money on stock footage, music, our freelancers etc etc.

I'm wondering if anyone actually charges late payment interest, say by issuing a new invoice? Chasing up invoices itself is hard work, and I think the late paying clients should pay for that, too...

 

[ITsoldUK]

I would suggest you grab yourself a coffee and go sit in a dark room and re-think your BM...no disrespect but just trying to assist.

1st things 1st, if they pay the deposit late surely that should ring an alarm in the first place?

2nd point I would suggest, is to not charge 50% but the deposit should cover your costs and the balance is your profit

3rd thing I would suggest is that if you are dealing with a ltd company, make sure they owe you £751.00...them give em notice they have 14 days to pay...then once they are late, stat demand their backsides and scare the hell out of them

Water tight payment terms in your t&cs will help enforce any action.

HTH

 

[maxine]

Hi Scatterbrain

There are a few things you can do.

- Get a purchase order process in place so that you get a signed PO at the time the order is placed. This usually helps large accounts payable teams match up invoices with payments they are expecting to make.

- Reduce the payment terms for late payers so they get less time to pay

- Late payment fees tend to get ignored. You could try early settlement discounts instead where you are rewarding for early payment.

- Get on the phone and understand what their payment processes actually are. You would be surprised how larger companies will help you get paid quicker.

- Refuse credit terms altogether for repeat offenders and ask for all upfront or in stages relating to the work if you can so the first 50% gets 50% of the work done and then the remaining 50% gets the remaining 50% of the work.

- Hold something of value back until the remaining 50% is paid.

Good luck and remember it's your business and you should only fund what you are prepared to take risks on

 

[gtellier]

I was in the photography biz for many years and i always ask fro 50% down and the rest when you get the product. Just don't give out any product till the bill is paid.

 

[raineshoe]

I hate late payment. Some of the companies I deal with on the service side of our business I'm sure wouldn't leave it over 70 days before paying their staff. Makes me so mad as if the boot was on the other foot they'd be chasing for it. Give them several warnings and then if they fail to pay take them to court.

 

[cts1975]

Big businesses know that some small businesses will put up with late payment and others won't. My take on it is i they don't pay you on time go and find a better client/customer who will !
Without sounding hard faced why should you finance their operation and have all the stress and worry of not being paid on time?

If your good at what you do then empower yourself and do business and get paid on your terms. Anybody who tells you its normal to not get paid on time by large companies is misinformed in my opinion.
When we give credit these days we ask for a contact in accounts who is responsible for paying your invoice. Give them a call to introduce yourself and to make sure they have all of your trading details ie bank account etc. If your lucky you get to start the relationship with accounts off on good terms.
As somebody else mentioned ask the accounts dept what is the best way to proceed for quick payment.

 

[iconic]

We are obviously in a different type of business, but we have some late payers... £30 here , £40 there etc...

We ask our domestic customers to pay their bill within 5 days... If they haven't after 7 days then I chase them every 2 days until they have paid - Seems to work for us!

Andy

 

[zaidy88]

If you are struggling to get a deposit from a client before starting a job, then surely that should ring some alarm bells that you will struggle to get your money once the job is completed.
Business is a learning curve, as explained we were in a similar situation when starting out, now we ask for a deposit, anyone who doesn't pay a deposit simply does not get the service and we move on to the next client, simples.
If they don't have the funds to pay the deposit, then we wait until they have the funds and deposit is paid in full before starting.

 

[Scatterbrain]

Many thanks for all the replies and advice, it is most appreciated.

zaidy88 - We normally insist on a deposit (50%) but in our field of video production sometimes it is not feasible as we sometimes have a 24 hour turnaround on a last minute job and there would be no time to arrange anything more than a quotation.

gtellier and Maxine - it is not as though we can hold anything of value back if they don't pay... in most cases we are supplying master versions of their videos before the final invoice is sent, as that is the nature of the job, we normally have very tight deadlines and in some cases the service is provided on the day.

The idea of a prompt payment discount is a great one and something we will look into, but wonder how this will work with the accounting -if they don't pay on time then do we reissue the same invoice, or a new one without the discount?

Our expenses are normally quite high as hire equipment and freelancers are hundreds of pounds each per day so we normally insist on a 50% deposit (even without we are committed to paying our own suppliers according to their payment terms even if we are not paid ourselves, which is so often the case and the reason for this post!).

Some of the companies we deal with have 45 and 90 day invoicing periods and they do not accept a 50% down payment arrangement either which can be really tough, but we are happy to accept it (especially as these are normally POs) as long as they pay on time.....

We offer high quality services at very reasonable prices and so have a good relationship with our clients and in some cases a simple, polite email or phone call is all that is needed to remind them an invoice is overdue. However, especially in the case of larger businesses or when there is a middle-man involved (often a marketing company) then the act of following this up becomes a nightmare as there is no single person to talk to.

So what we really want to know is the best accounting procedure to handle this once it has gone beyond the friendly reminders.

1. Do we reissue the same invoice with the same number and add late payment interest to it?

or 2. Do we create a new invoice with a new number with just the late payment interest on it?

What do you do with your accounts to keep it simple? The fact -and this is true- in five years of business we have never missed a payment ourselves so do not know what other companies do when you do not pay!

 

[maxine]

option 2 - new invoice for the late payment fee plus interest but from experience these will get ignored and not paid so it's worth thinking if it's worth the hassle really Are you really going to go down a debt recovery and enforcement route for a sake of a few pennies of late fees and interest or put an account on stop at the expense of the overall contract worth? probably not. I understand that you are probably fed up but this approach is a bit like trying to shut the stable door after the horse has bolted and probably won't influence their payment patterns very much.

The other thing you could possibly do is to introduce a deposit scheme where you request a deposit payment to be held on account for your late payers/high risk customers. This could come into effect where for example 3 invoices have been paid late and you send a letter to inform of this change in advance so they/appropriate person in the organisation is made aware. You can then refund the deposit after say 3 payments have been made on time.

Late payment is a pain but bad debts are even worse. Are you happy that you have covered your risk in the event of non payment altogether? Perhaps credit insurance would give you a bit of comfort.

Otherwise I really would look hard at your business model to try and create/invent something of worth that can be with held until payment is received.

If there is a trend with the marketing agencies you work through then perhaps involve them in the process too if you can. If some agencies are worse than others then ask them to stump up the deposit because of persistent late payment by their clients.

Alternatively why not build the whole cost of late payment into your pricing and then reward with a discount payment at the end of the year/quarter/6 months/contract or whatever for payments that you have received on time

Possibly another option for you to consider for cashflow is factoring but it needs to be very carefully considered as may not be right for you.



.

 

[spreadtrader]

At the end of the day, for a small business, it's always going to be a tightrope walk between being easy to deal with (dealing on trust) and having rock solid procedures in place.

When you are sub contracting adhoc you will always be at the mercy of other peoples will. Put a barrier in front of the minion that prevents them impressing their boss and they will often bin you off quicker than you can say '50% upfront with a PO signed by your director' and go and mug some other poor soul for a 90 day credit line.

Or learn how to properly forecast your cash flow on 90 days and go raise the capital to fill the resulting gap. Be it overdraft of some kind of invoice factoring service. It's never ideal and incurs cost but it sure make running a business a whole lot less stressful.

If you can't fill the gap you're running the risk of operating on your financial red line - and that's how profitable businesses go bust.

 

[Vectis]

....... but in our field of video production sometimes it is not feasible as we sometimes have a 24 hour turnaround on a last minute job and there would be no time to arrange anything more than a quotation......!

Even with a tight production schedule there must be time to take a credit card payment? Failing that, most banks now operate Faster Payment where payment can be in your account within a few hours. Email them the invoice and there's no excuse really.

I must say that I'd be wary of a company who were so disorganised that they needed any work doing within 24 hours! Surely they must know that they'd want the job doing more than a day in advance?

 

[TheBuzzCommunity]

Hi OP

So far I have been lucky, on my invoices I put a late payment levy on the invoice and the customer would receive a discount if paid on time.

If a customer would to pay me late, I would charge them for it

 

[Ian J]

If they don't have the funds to pay the deposit, then we wait until they have the funds and deposit is paid in full before starting.

With most large corporates it isn't a shortage of funds that is the problem but internal systems and if one is dealing via a marketing or advertising agency the problem is compounded as there are two systems involved with even more people required to sign off an invoice before it reaches accounts.

I'm afraid that it's a fact of life that if you are in a competitive industry and want to deal with large corporates then you just have to accept their terms otherwise they will just find someone else who will.

Boots is an excellent example as they won't pay you in under 90 days and if you don't like it they will happily dump you for someone else who will.

 

[roydmoorian]

How would you deal with getting payment from one of these bigger companies which use procurement cards - which are then maxed out when they need to pay you. I am talking about a company whose bearded boss runs banking, media and travel services :redface:

 

[Guida Rufino]

I have a few stages.

* Give them a bit more than 30 days

* Ring / email them (depending on what we've done in the past) and remind them it's due and ask when it will be paid. Often at this point it becomes apparent they "never received it" or "haven't processed it yet". Often a phone call is enough to get things moving.

* If they haven't paid by when they said they would in the previous contact, I call or email them again.

* If they still haven't paid, I restrict services. This is obviously dependent on what kind of goods or services you're supplying. I run an occupational health company and I just withhold certificates, reports etc until they pay which they often need to be able to carry on working or go on a specific job. You'd be amazed just how quickly people can arrange payment when they're properly motivated! Big companies in particular try and make out that it takes a really long time to raise payments but somehow they always manage to do it overnight when they want to.

* Any companies who have taken things this far, have to always pay in advance in future. No debate.

* If all of the above doesn't work, use the HMRC online money claim facility. It's really good, easy, all done online and has worked every time for me in the past. Obviously any companies that I've had to take to court I won't work with again, ever. The only thing worse than having no customers is having customers who use your services and don't pay.

I think the most important thing is to get tough. At the end of the day, you wouldn't walk into a shop, buy something on tick, not pay when you said you would, then expect to carry on getting tick. Why should it be any different for companies?

And don't let bigger companies push you around. Some companies think you should just be grateful they're your clients, no matter how ridiculously bad they are at paying. Any client who tells me they'll only pay 60 or 90 days from month end or whatever gets laughed at and told to go find some other mug to do their work for them. 9 times out of 10, they come back and agree to 30 days. I always make sure these bu**ers sign the T&Cs too so when they try and weasel out of it, I have evidence that they've agreed to my terms.

Sorry I know not all of this is applicable to you but I got on my soapbox a bit there!

personally I avoid clients like that. Do you really need their business? I find the bigger the company, the more they screw me on price, the more outrageous their demands about turn around times etc and the more hassle I have with payment etc. I find with big companies that they suck up all your energy, are really demanding but treat you like cr*p when it comes to paying etc. And if you have too many eggs in one contract basket, you're really screwed if that client then goes elsewhere.

Just make it an absolute pre condition of doing any work with them that they pay the deposit on time. If they don't, then don't work with them. I know it's hard, I hate turning work away. But I've had so much hassle over the years with this kind of carry on that it's got easier with time. And it's kind of fun because they're so surprised when you say no! They think they're the bee's knees and you'll be falling over yourself to get their work so saying "no thanks, you're terrible payers and have a terrible reputation" is really fun!

Another option which I've never actually done but I think might work; for any work you don't really want or aren't sure about, double your price. If they still want it, happy days. If not, you've effectively turned a contract down without making yourself seem difficult.

good luck!

 

[Chris Ashdown]

The best solution is to be brave and not give credit untill they prove the amount of work they give is worthy of the risk

We do not give credit unless it's a government department of the customer has built up at least a 6 month trading history and the value of the orders make it worthwhile

All our major compeditors offer credit to anyone and the largest Alexandra went bust owing over 50 million

We take credit card details at the start of the order and only take payment upon dispatch, we work for HM Prisons, Hospitals, Advertising agencies, Railway companies, Many tv and production companies and thousands of individual or small companies and all pay by card up front except the hospitals, most of the bigger ask for an account and we tell them they will need 6 months trading history to be considered, all continue with card s once started with us

 

[DickM]

Hi there,

My first post here.
I run a small business from home with my partner and we have a big problem with our clients not paying on time (I've just joined the forum - sorry if this kind of question has been asked many times).
It seems to be getting worse and worse lately. Out of ten invoices we issued in May, only two were paid on time.

I would really like to know how other small companies deal with late payment?

We do state in our invoices that interest will be charged on overdue invoices, but nobody seems to care and we once re-issued a new invoice with the charge to one of our clients, but they just ignored the new one and paid the original amount.

What is the best accounting practice - to add late payment interest to the original invoice number and resend the invoice, or to create a new invoice with just the late payment interest?

Thanks

I've read all the responses, and can confirm from extensive first hand accounting & finance/analysis experience with two of the world's largest Automotive Corporations, that the biggest companies do not have a great track record when it comes to paying for their supplies & services - however they do pay their employees on time & everytime
As already mentioned in other replies, the best and immediate course of action is (if geographically practical), to make an urgent appointment with The Accounts Payable manager/supervisor of the delinquent entity.
Nearly always the missing or incomplete piece of paper (the golden, buyer approved Purchase Order or amendment), is the sole reason for non-payment; the second being "no proof of receipt of goods or services". Once sorted, even the most gargantuan Corps get their procurement chain/process act together, and pay within a matter of days/weeks; even in 24 hours with their "prompt payment" fall-back mechanism coming into play - as even mega companies hate their name being associated with a Small Claims Court action! Also, they really hate internal forecast vs actual cash-flow hiccups!

So, to "head off @ the pass" these potential non-payment problems, my advice is to contact the NEW customer immediately after proof of delivery of goods or services, to confirm physical receipt, and also no problems with product or service quality (again, all big companies have a Quality Control "army" who can justifiably bog things down if specification issues. Next, confirm their payment terms, and ascertain what future date you may expect their remittance to hit your bank.
This may all seem an overkill, but once the customer realises that you are running an efficient business (tight ship), future transactions should be a piece of cake
One shadow over all this good practical advice, is the current economic recession .............. but that's Cam's problem

 

[DickM]

How would you deal with getting payment from one of these bigger companies which use procurement cards - which are then maxed out when they need to pay you. I am talking about a company whose bearded boss runs banking, media and travel services :redface:

Surely not that bloke who recently Kite-surfed the English Channel or once had a monkey on his back?
[URL="http://www.autoracingdaily.com/mygallery/Richard%20Branson%20Goes%20Naked%20Girl%20Kite%20Surfing%20(Photos)/?galleryid=32653"URL]

 

[Steve Sellers]

Moving forward I would ensure that you have your terms and conditions apply to the deal.

Put in place a high interest change on late payments (you don't need to use it but it is a good tool to leverage payment)

Depending on what your business is you can also reserve the right to hold a "lien" over your clients documents. This can be very useful if they need those documents to trade - e.g. in the case of a pub their licensing certificate.

To echo what many other people have said - ask for payment upfront. There is no law saying you must give credit. If companies show they are good payers then consider allowing them longer payment terms - otherwise ask for money upfront.

 

[tompeters]

Its a nightmare isn't it, late payers. My advice would be don't leave it too long before taking a more forceful action. I was owed money from a company that I continued working for and kept getting fobbed off with I'll pay you soon, just got a few cash flow problems. Anyway this continued and months later I'm still owed money, so have decided to go down the small claims court route. I just wished I hadn't continued for so long as the amount owed went up.

 

[DickM]

Surely not that bloke who recently Kite-surfed the English Channel or once had a monkey on his back? see below link

http://www.autoracingdaily.com/myga...d Girl Kite Surfing (Photos)/?galleryid=32653

 

[andygambles]

Thankfully as we sell software it simply gets disabled if they don't pay. payment soon comes then.

 

[termsandconditions]

Hi there,

My first post here.
I run a small business from home with my partner and we have a big problem with our clients not paying on time.... It seems to be getting worse and worse lately. Out of ten invoices we issued in May, only two were paid on time.

I would really like to know how other small companies deal with late payment?

We do state in our invoices that interest will be charged on overdue invoices, but nobody seems to care and we once re-issued a new invoice with the charge to one of our clients, but they just ignored the new one and paid the original amount.

What is the best accounting practice - to add late payment interest to the original invoice number and resend the invoice, or to create a new invoice with just the late payment interest?

Thanks

Adding late payment interest allowed under the Late Payment of Commercial Debts (Interest) Act 1988 is not really a deterrent to late payers. This is because the interest penalty is linked to the Bank of England Base Rate which is still at an all time low of 0.5%.

If you are going to issue an invoice for late payment interest then issue a separate VAT-free invoice for 8.5% p.a. on the amount outstanding. I'm sure you are already aware that the calculation begins when the debt becomes due e.g. at 30 days if your payment terms state this.

You can ramp up this late payment interest charge by including a higher rate of late payment interest in your terms and conditions. Our own clients find this is rarely challenged by their customers. This can be used as the basis of a revized credit management policy for your business.

Another reason for good terms and conditions is that when dealing with the bigger businesses you'll need strong client documentation as their default purchase terms often run to 60 days or longer. So if you have no written terms agreed with your client they'll just say that their's apply by whizzing over their standard purchase terms and conditions. The previous advice about Purchase Orders is good.

Then once your own terms are in place and you haven't been outwitted in the 'battle of the forms', you can use these to have a structured, timed credit management process and educate your clients to pay you on time by carefully leveraging specific clauses in your terms and conditions.

Late Payment prevention is way better than immediately running to the courts as our legal process is slow, costly and doesn't always give the desired result. Consider that you will also have burnt a client relationship forever.

It is absolutely possible to reduce your reliance on the courts, debt collection agencies, credit factoring, invoice discounting and credit insurance by getting the basics right first.

Best Regards

 

[Scatterbrain]

Many thanks for all the replies -we have been reading and thinking about them and they have been most helpful.

Firstly it is comforting to know we are not the only ones tackling this issue and also can confirm that large businesses are the biggest culprits here. But as Ian J rightly said it is a fact of life when dealing with larger companies (which are of course larger contracts) that we have to accept their way of doing business.

Thanks Maxine for confirming that option 2 (a separate invoice) is the best way for managing the accounting side of late payment.

Guida Rufino -you are certainly right about the "only thing worse than having no customers is having customers who use your services and don't pay." Although sometimes that is hard to know in advance -as recently a large client who had paid a 50% deposit on time then was late paying the remainder and we had to spend considerable time chasing up with polite threats.

Steve Sellers - asking for the money upfront is a good idea and we if at all possible ask for 50% as this ensures we can cover the equipment hire, freelancers, hotels, flights etc etc. But the fact is that it is not always possible, especially with the larger companies we deal with who have non-negotiable terms (which ironically have the more expensive productions).

DickM -I really like your idea of ensuring they realise we run a tight ship and so must adhere to our accounting system, which is the reason for this posting so we can tighten that ship.

To confirm we already have T&Cs and quotations/invoices etc that state our late payment policy of charging interest. We originally had it set at 8% but since it wasn't working we have simply stated it is a blanket 10% to cover our time involved in casing up the late payers. And in the case of one late paying client when we sent them a separate VAT free invoice charging them 10% they immediately paid the original invoice amount so in effect it worked (although we are unlikely to hear from them again!). However they subsequently ignored the late payment invoice, leaving us with the question of whether we follow up the separate late payment invoice...and charge late payment on that as well...?!

In summary -due to our line of business (video production)- it seems our next course of action is either:

1. Be more strict with enforcing a late payment policy (is 10% unreasonable?) so clients know we run a tight ship
2. Or offer a discount for prompt payment - as it then allows us to have something of value to hold back if they do not pay on time so to speak.

I think option 2 sounds like a more positive incentive and is more obvious as it can be used during negotiations, drawing their attention to it.

 

[Marco Casario]

If you can afford it, I would say just drop them! You could be missing out on more rewarding transactions.

 

[Geoff T]

...

Has to be said - that was CLASS Mr H...

 

[Ian J]

In summary -due to our line of business (video production)- it seems our next course of action is either:

1. Be more strict with enforcing a late payment policy (is 10% unreasonable?) so clients know we run a tight ship
2. Or offer a discount for prompt payment - as it then allows us to have something of value to hold back if they do not pay on time so to speak.

I think option 2 sounds like a more positive incentive and is more obvious as it can be used during negotiations, drawing their attention to it.

The trouble with option 2 is that quite a few of these rogues will still pay you late but will also deduct the discount too

 

[Steve Sellers]

The trouble with option 2 is that quite a few of these rogues will still pay you late but will also deduct the discount too

Exactly. And if it is only a small amount it could be not worth pursuing in the courts or losing them as a client. I think it's always best, if possible, to hold some kind of leverage - like a lien over property.

 

[termsandconditions]

......
To confirm we already have T&Cs and quotations/invoices etc that state our late payment policy of charging interest. We originally had it set at 8% but since it wasn't working we have simply stated it is a blanket 10% to cover our time involved in casing up the late payers. And in the case of one late paying client when we sent them a separate VAT free invoice charging them 10% they immediately paid the original invoice amount so in effect it worked (although we are unlikely to hear from them again!). However they subsequently ignored the late payment invoice, leaving us with the question of whether we follow up the separate late payment invoice...and charge late payment on that as well...?!

In summary -due to our line of business (video production)- it seems our next course of action is either:

1. Be more strict with enforcing a late payment policy (is 10% unreasonable?) so clients know we run a tight ship
2. Or offer a discount for prompt payment - as it then allows us to have something of value to hold back if they do not pay on time so to speak.

I think option 2 sounds like a more positive incentive and is more obvious as it can be used during negotiations, drawing their attention to it.

Actually I would go with both (subject to the level of late payment interest - see below) on the grounds that it helps your power of persuasion with a client who is inclined to pay late. I personally believe the actual amounts charged are secondary to how you pursue late-paying clients. Because your greatest leverage is the threat of charging late payment interest/penalties rather than actually charging it.

By way of explantion and based on established principles of influence, you have a relatively narrow window of assertiveness to operate when seeking to influence the behaviour or opinions of others. Too aggressive (like banging in a 10% charge on Day 31) will just horrify your clients. Too passive, such as a random series of polite reminders (i.e. the broken record technique), is equally ineffectual.

Instead, consider a middle ground of assertiveness where you steadily ratchet up the pressure. It's a lot like moving up the gears in a car. In this case, your gears are a pre-determined and timed mixture of telephone calls and letters which rise in their level of assertiveness, boosted by the clauses in your terms and conditions.

Speaking of which, I would like to clarify your late payment interest charge. Is it really a flat 10%? Or is it 10% per month or 10% per annum?

If it's a flat 10% - I think this is inadvisable because it is the highest late payment penalty charge I have ever come across in a contract and your clients will be even less likely to pay it; and ii) you will find it difficult to enforce this penalty in the courts. Also, if the debt gets very old then you have effectively capped the amount you can charge and claim for through the courts.

If it's 10% per month - this is way over the top of-course.

If it's 10% per annum - this is slightly better than your statutory rights but if the Bank of England Base Rate rises above 1.5% per annum then you have written in a lower late of late payment interest into your terms and conditions to which your business is entitled.

We recommend between 1.75% and 2.5% per month compounding.

Best Regards

 

[Scatterbrain]

Many thanks again for the replies.

I think you are right Ian J, discounts would be the same as late payment interest -non-paying clients would just dodge paying more, just as they are dodging paying it on time!

And also the interest advice is great, termsandconditions...I have a suggestion (below).

In almost all cases (except for video hosting) we do not have any 'property' or service to withhold so it does seem the carrot and stick method, with it being ramped up over time is the answer.

We need to make a firm decision on how to move forward and this is what we are deciding -let me know if you think we are going in the wrong direction:

Stage 1. We are a husband and wife team running the business using freelancers (numbers depend on the size of the job) -husband is the creative producer, wife runs the business/accounts side. So once an invoice becomes overdue then the first point of contact (husband) will politely remind the client with 7-10 days of the invoice becoming overdue probably by email or whatever form of communication is most often used with that client.

Stage 2. If no response then a polite phone call is made to ensure they are aware it is overdue.

Stage 3. If there is still no response, the issue is then passed on to the wife (accounts) to calculate late payment interest. We are thinking of using the free calculator at contractorcalculator-co-uk. As a case study we presently have a client who owes us £2,025.30 (including VAT) and it was due 10-Jun-12. According to this calculator it would be the following:

Reference rate for interest (on 10/Jun/2012): 0.5%.
Statutory interest rate: 8.5% (0.5% base rate plus 8%)
Annual interest : £2,025 x 8.5% = £172.12.
Daily interest: £172.12 / 365 = £0.47
Days overdue: 60.
Interest due: £28.29.

So we would create a new invoice for £28.29 and send most likely be email from an accounts email address, along with how it was calculated.

Stage 4. If there is no response then the overdue invoice and late payment invoice would be sent to the mailing/postal address with a covering letter revealing that this has now got to the stage of being serious (i.e. a red letter).

Stage 5. No further response...pass on to legal agencies.

What do you think?

 

[Geoff T]

Sorry OP - but as a "basic" kind of guy... and a Credit Consultant... I'd have to say that you DO have collateral to work with...

It's what you provide! How about this as an idea for "out of the box" credit management ideas...

Big companies will ALWAYS have the option to give you a purchase order number, and email you a purchase order... for those guys you make it clear that the "duvet DOESNT twitch" till you have a PO number... if they refuse, snuggle in... that sorts the big guys...

Small guys... sounds like they come to you on recommendation - so you have the option to at least break even by requiring the correct amount of deposit up front in cleared funds... that way all you're risking is the profit...

either way - don't part with finished product until they either pay (small) or sign off as a done deal (big)

HTH

 

[Guida Rufino]

I think that's a good plan. BUT it does sound quite time and resource intensive. Make sure you've factored in the amount of man / woman hours you're going to spend in this process and whether it's still worth your while to work with people who mess you around. Your time is valuable and every hour that you spend chasing people and working out how much they owe you in interest etc is an hour you haven't spent getting more business or servicing clients who aren't inconsiderate mickey takers.

My experience is that companies that pay late always pay late and there's a limited amount you can do about it. I had to kick off again with a client yesterday who has signed my T&Cs agreeing to 30 days but still doesn't pay on time. The girl in accounts asked me for a statement of what they owed us for the 3rd time in a month. I told her she should check her own records and said very bluntly that if they didn't sort their act out we wouldn't do any more work for them as I have better things to do with my time than chase them for payment and provide them with information that they already have themselves. I had a remittance within the hour!

I know it's always hard to turn business away but in the longer term, the ideal goal is to be in a position where you can afford to turn bad payers away and concentrate your resources on people who pay their bills. If the p1ss takers want your work badly enough, they'll pay upfront.

 

[Geoff T]

I think that's a good plan. BUT it does sound quite time and resource intensive. Make sure you've factored in the amount of man / woman hours you're going to spend in this process and whether it's still worth your while to work with people who mess you around. Your time is valuable and every hour that you spend chasing people and working out how much they owe you in interest etc is an hour you haven't spent getting more business or servicing clients who aren't inconsiderate mickey takers.

My experience is that companies that pay late always pay late and there's a limited amount you can do about it. I had to kick off again with a client yesterday who has signed my T&Cs agreeing to 30 days but still doesn't pay on time. The girl in accounts asked me for a statement of what they owed us for the 3rd time in a month. I told her she should check her own records and said very bluntly that if they didn't sort their act out we wouldn't do any more work for them as I have better things to do with my time than chase them for payment and provide them with information that they already have themselves. I had a remittance within the hour!

I know it's always hard to turn business away but in the longer term, the ideal goal is to be in a position where you can afford to turn bad payers away and concentrate your resources on people who pay their bills. If the p1ss takers want your work badly enough, they'll pay upfront.

EXACT and to the moment proof why Credit Consultants/Managers/Controllers/staff are worth the pay...

We get the payment - and save the stress to the biz owner on the side...

end result? - payment and a retained customer = good job done!