How to handle late paying customers
Late payment can be one of the biggest challenges that small businesses and freelancers have to face. Cashflow is extremely important to a business, yet all will - at some point - face customers who are slow at paying, whether they are suffering financially or not.
Many companies simply back down due to their clients' reluctance to pay up, and some because of the awkward conversations it can create. However, when collecting what you are rightfully owed, it helps to follow a defined step-by-step process which will help you get your invoice paid quickly and limit damage to you and your client's relationship. Here are some useful tips when it comes to dealing with late paying customers.
Make the most of online tools
There are numerous credit control and e-invoicing tools available which will make life easier for you when chasing invoices. They will remind you when invoices are due for payment and provide all the key details you need to chase them (such as invoice numbers and contacts). Take a look at these five invoicing tools for consultants and contractors to find out which one is right for your business.
Online credit checking services are also useful as they can help you assess whether a new client is likely to be a late payer. A number of low cost services are available and it could stop you taking on the wrong kind of client.
Even if you are a one-man-band, you should still have fixed policies and processes for dealing with late payers. Remember that prevention is better than cure: all clients should sign terms and conditions which explain what happens in the case of late payment and how interest may be added. This will help if, in a worst case scenario, the case gets to the stage of court action. Chasing money can be a time-consuming process, so having clearly-defined procedures in place will help you in the long run, both in terms of profitability and reducing stress caused.
Contact the client straight away
On the day payment becomes overdue, you should contact the client directly over the phone. Try to avoid email - you will be able to get an answer quicker over the phone, and your tone of voice won't be misinterepreted. Try to keep the conversation friendly - after all, there may be a perfectly good explanation why the invoice hasn't been paid. State that there is an outstanding balance and ask if there is a reason why the amount has not been paid. Try to agree a date when the payment will be made, but if your client is unable to give a date straight away, say that you'll call the next day once they have had a chance to look into it.
It's important to remain professional and courteous at this stage. Approaching your client too aggressively when there is a fair reason for late payment may cause unnecessary damage to the relationship.
If you have still not received any money after chasing the client, send them email reminders and follow up with a telephone call. Be firm, cautious of excuses, and press your client for a date of payment.
Depending how overdue the invoice is, the value of it, and if subsequent invoices have not been paid, you may want to consider withdrawing your services to the client. This will put pressure on them to settle the account quickly. It's important to remember that late invoices can potentially turn into bad debts, and continuing work for nothing could cause severe financial problems for your own business.
During your chasing, it may transpire that your client is experiencing financial problems. If this is the case, try to arrange a meeting where you can agree either an instalment plan or settlement.
No-one likes the thought of legal action, but sometimes patience is not the answer. If you provided the service, you are entitled to be paid. Depending on the size of the debt, you may want to speak to your solicitor who can advise you on the next course of action. This is likely to be a formal letter of claim, which will hopefully be enough to make your customer pay in full or at the very least bring them to the table to agree a settlement.
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