Preventing and recovering late payment

Home

Members

Services

News & Info

Entertainment

Help

Content Starts Here

Preventing and recovering late payment

Search: Find a business credit card

Why should you read this guide?

In business there are many sayings - one of which is "cash is king". If you have been in a situation where you are close to your overdraft limit or about to go overdrawn for the firs time while being owed £1,000s from clients you will know what this means. This guide will give you some basic ideas on making sure you get payments in on time and what to do if you don't.

Background

Most people in business have at one time suffered from the circumstances mentioned above. If you are lucky you will have a sympathetic bank manager who will increase your overdraft or allow your suppliers to be paid. However in a lot of circumstances you will end up being late to pay your suppliers as well and a vicious circle begins. There is a lot of call in the UK to prevent people from going past the payment terms of invoices and making it illegal like some other European countries. Until then there are steps you can take to ensure prompt payment.

Terms of payment

When you issue your invoices you should always have the amount of time you are happy to wait for payment. Most people will take it that this is 30 days if you do not. When you gain a customer for the first time you should issue them with a letter or statement of your terms of business. This can detail the work you are going to do but should also detail how you expect to be paid. You can also lay out what happens if they do not pay within the terms given. For example:

Payment terms 14 days from delivery of goods
Payments not received by 14 days will accrue interest at x% over base rate
Payments outstanding at 30 days will accrue a 10% late fee
Payments not received within 45 days will be passed to our debt collectors.

In terms like these you are being upfront with your customers and they can have little complaint if you need to take action against them. There is always an argument about how do you do this to a regular customer. The question should be though if they don't pay on time do you want them as a regular customer?

Diarise invoice administration

There is little point in telling your customers what you will do if you don't actually do it. You should always diarise each invoice to make sure that you have received it in the 14 day period, if not send a reminder telling them they are now accruing interest. Again diarise this for the 30 days and apply the late fee to the invoice. It is best to issue the late fee under a separate invoice as it is unlikely you will ever get this paid and it could mess up your invoicing system. The point of all the threats and the timescales are all about getting your original invoice paid. Finally diarise it for the 45 days and pass for debt collection at this point.

Debt collection

There are many legitimate debt collectors working in the UK today. All you need to do is put "business debt collection" into a search engine and you will be given a huge list to choose from. Many of these businesses work on a percentage of money collected basis. Other will work for a very small fee initially (some as little as £3). They will firstly write to your client and inform them that they are now working on your behalf. Mostly they will add their fee to any new invoice they issue to the client. They will then continue to chase the client for payment, keeping you informed. If they feel further action is required they will advise you of this. You will then be in a legal situation where you need to decide if you are going to take your client to court for recovery of the debt. This will cost you money and unfortunately you need to decide if this is worth the extra expense. However, the threat of legal proceedings is usually enough to make the client finally pay up.

Summary

You should always do background checks on new clients who will take big orders from you. Once you have done this present them with your payment terms and make sure you stick to them. If required shop around for a debt collection agency. Remember if you don't enforce payments of your invoices it could be you that goes out of business.

Further information

Find out more from Business Link on http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1074453392

Find out what your legislative rights are as a small business