Dealing with late payments
Getting your customers to pay you promptly is critical to your cash flow and your ability to plan ahead. The longer it takes customers to pay, the more likely it is that they will not pay at all. Happily, there are steps you can take to encourage faster payment.
Your first move should be to carry out credit checks on new customers. If they are satisfactory, then agree credit limits and time scales before any transaction takes place. It is best to put your terms and conditions in writing. Don’t just credit check your new customers: your existing customers’ circumstances may change.
Issue invoices quickly and make sure they are clear. State when payment is due and warn that you will charge interest on late payments. Where a debt becomes overdue, actively chase the payment. Send a statement of account by post and email, but also phone the customer. If the customer does not commit to a payment date, tell them you will not be able to supply further goods or services until the bill is paid. Where a customer has cash flow difficulties, you might be able to agree a payment plan.
Alternatively, you could use a debt factoring or invoice discounting service, under which you borrow, in effect, against your unpaid invoices for a fee. But it can be expensive. If, after trying everything, your customer still does not pay, you can consider more formal means, such as a solicitor’s letter or using a debt collection agency, although this can be costly. You can issue a statutory demand stating you will apply to court for the winding up of the customer’s business if payment is not made.
Legal action, where worthwhile, should be a last resort and remember that you cannot usually recover legal fees for debts under £5,000. Finally, remember to pay your own bills on time. Other businesses also need good cash flow.