How to deal with clients’ late payments

For bookkeepers, chasing late payments can be an onerous task.

According to accounting software provider Sage, 17% of all payments to UK-based small to medium-sized businesses arrive after the due date. As a result, SMEs typically spend 15 days a year chasing late payments.

Whether you are a sole trader, or an employee at a big company, part of your role as a bookkeeper is ensuring delayed payments are dealt with quickly and efficiently.

So what can you do to encourage clients to pay on time, and what steps can you take if a company or individual refuses to pay? Here are some of the options available.

Know your clients

A reliable means of contacting a client is essential when dealing with late payments. So make sure you have up-to-date contact details for everyone on your books.

Antonio Scamardella, an accountant at AJSD Group Limited, said: “Always keep your client database updated with their current addresses, emails and phone numbers.”

To protect against delayed payments, it can also be worth getting a credit report on a company before taking it on as a client. The information in this report will help you to work out whether or not the business is likely to pay on time.

Enhance your invoicing process

A well-managed invoicing system is also vital to avoiding late payments. Good practice includes sending out invoices as early as possible, and stating payment terms clearly and concisely in all correspondence.

Alessandra Parsons, owner at AKay Bookkeeping, specialises in bookkeeping for creative businesses. She uses Wave accounting software to manage her invoicing.

“Wave allows me to send both one-off and recurring invoices that offer clients the option of paying via online payment processor Stripe or by bank transfer,” Parsons said. “The software also is able to send reminders for any later payments, which is very time efficient.”

She believes that giving clients multiple payment options helps to prevent payments becoming overdue. “I have one client who is set up to pay via Go Cardless, which works like a direct debit so we both know that the payment will be made on a set date,” Parsons said. “Such tools are great for avoiding late payments.”

Send out regular reminders

Not wanting, or being unable, to pay are not the only reasons clients miss payment deadlines. Sometimes, they simply forget. Either way, sending out regular reminders will improve your chances of receiving payments on time.

Try sending a friendly email just before the due date, and follow up with a more formal reminder if the date has passed. “Make sure you do your bookkeeping and payment management on a regular basis, so you can keep on top of your business administration,” Parsons said.

Picking up the phone can also be a good way to elicit a speedy response once payments are overdue. Scamardella said: “I don’t spend much time chasing debtor balances.

“However, it is my first task in the morning. I switch on my computer to look at balances that are outstanding and I get on the phone.”

Set advantageous payment terms

In this digital age, there is no need to offer clients 30 days or more to pay an invoice. In some circumstances, you can even ask for payment in advance.

“As an accountant, the best way to avoid late payments is to ask clients to pay in advance,” Scamardella said. “We don’t work like this, but I know many chartered accountants ask for their fees to be paid before submitting accounts to Companies House.”

His other tips include sending late payment demand notices to tardy clients’ residential addresses, and using interest and penalty charges to make it less attractive for them to miss payment dates.

Giving clients multiple payment options helps to prevent payments becoming overdue

Penalise clients who fail to pay

Introducing overdue payment fees or interest charges – and discounts for those who pay early – can be a very effective way of reducing the time you have spend chasing payments.

Just be sure to clearly state the details of any such fees both in your contract, if you have one, and all invoices you send out. Putting such charges in place does not mean you always have to impose them. If, for example, you have a good client who misses one payment date, waiving the fee can help to further strengthen your relationship.

“My terms and conditions do say penalties will be issued for late payments, but I haven’t applied any yet,” Parsons said. “I think I would apply penalties if the reminder invoice didn’t get paid, though.”

Understand your rights

Even if you do not have late payment fees in place, you can officially claim interest and debt recovery costs once a client is 60 days’ late with payment. The “statutory interest” rate set by the government for business transaction is Bank of England Base Rate plus 8%.

Late payment laws also allow companies to charge fixed sums of £40 on up to £999.99, £50 on between £1,000 and £9,999.99, and £100 on £10,000 or more.

The is plenty of information available on making a “statutory demand”, and how to proceed if that too is ignored.

Jessica Bown is an award-winning freelance journalist and editor..

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