Chase late payments without the awkwardness

Your stomach churns, you sigh; that client still hasn’t paid their invoice. Find out how people in the industry stop this behaviour in its tracks and chase payments with ease.

Dealing with unpaid invoices is one of the toughest things about running a small business, admits Ed Molyneux, CEO of FreeAgent. “Business owners can feel awkward about chasing payments, even though they need to get paid promptly to keep their cash flow healthy.”

You’re a business after all, not a charity. You’ve got bills to pay yourself. Fortunately, there are strategies to reduce your debtor’s list and collect outstanding invoices without breaking a sweat.

Prevention first

Ideally, you don’t want to be in a situation where you’re owed money and have to chase payment.

Keep your eye out for potential late-payers from the start, advises Jenny Oldfield, CEO of credit management solutions firm Veritas Commercial Services. “Carry out thorough due diligence (including KYC and AML checks) when a client comes on board, to prevent issues further down the line”.

From your side, be clear about your payment terms from the outset. Miscommunication is your biggest area of risk.

“Talk about billing and payments on day one so there are no surprises later,” says Accountant Adrian Markey. “It’s also worth testing the water and asking for a deposit. If there’s resistance at that point, alarm bells should be ringing.”

Get any wording about your payment terms airtight with advice from a commercial debt recovery agency, advises Martin Mellor, Managing Director at Mellor Financial Management. “The tighter the language, the easier it is to enforce payment down the line.”

Key tips:

  • carry out due diligence on prospective clients
  • make payment terms clear on engagement
  • set out your payment terms on every invoice
  • ensure your invoices are clear and easy to understand.

Billing structures to suit each client

Markey, who set up his practice two years ago, wanted to be on top of his debtors right from the start. “The practice I trained in routinely let fees mount up. Then, when the bill was higher than what the client expected, it usually led to a drawn-out process of avoidance and haggling.”

He adds: “Some of their difficulties arose from billing by the hour. I work on a fixed fee basis as it gives clients certainty, and the chance to pay in full upfront, or in instalments. The latter works particularly well with cash retail businesses who prefer to pay £250 a month than £3k in one go.”

Do what works best for your client to smooth the process for them.

Key tips:

  • Don’t let your time costs mount up – bill regularly
  • When working on a fixed-fee basis, encourage clients to pay monthly.

Automate your invoice chasing

Invoicing and managing your debtors is much easier if you’ve moved your clients to a cloud-based system such as Xero or QuickBooks.

Accountant Markey says: “Recurring invoices can be set up to automatically go out monthly, saving on the admin of copying last months and resending. And you can also set up payment reminders the client will receive via email”.

Nobody wants to fill their calendar with reminders to chase clients, or spend time scheduling them all in. Automated software takes care of it all for you.

Mellor recommends cloud-based systems too, adding: “You get a clear picture of what’s been paid, what’s still owed, and how late it is. And, when chasing payment, integrated apps like Debtor Daddy allow you to personalise the messages for late payers – for example, you can change the tone of voice the longer a client takes to pay.”

This kind of software can save you a lot of time in the long-run.

Key tips:

  • Automate the process of chasing debtors, personalising it for each client.

Make it easy for clients to pay you

Markey points out that, as accountants typically bill clients for their Xero subscription monthly, it’s a perfect opportunity to ask if they want to pay their fees monthly, too.

“If they sign up to Direct Debit, GoCardless for Xero will then collect the money automatically on the invoice due date.”

If they don’t sign up to Direct Debit, other options are BACS or card payments. With Stripe and Paypal for Xero, your invoices can go out with a Pay Now button so clients can settle by credit or debit card.

“I’ve also had a couple of clients wanting to pay in Bitcoin so I gave them my wallet address and they sent the payment through in a few hours,” says Markey.

Key tips:

  • encourage clients to sign up to a direct debit payment process
  • provide a range of payment options so clients can choose the one they actually like using; payments should be more likely.

How to deal with late and non-payers

If the client’s still delaying payment, you need to be friendly but firm.

Markey says:They need to be told that no more work will be done until they settle outstanding fees. Although if you want to retain the client, it may take compromise on both sides. I’d be pushing for a payment plan that pays the amount owed and also prepays (or at least part pays) next year’s fees.”

If your best efforts fail, it may be time to cut the client (but not necessarily your losses).

“Whether it’s taking your case to small claims court, getting a solicitor involved, or referring the matter to a debt collection agency, you have several options to help claim what is rightfully yours,” says Molyneux.

This will effectively end any positive relationship with the client though, and they may start bad-mouthing your business. Ask yourself if it’s worth the potential reputation damage.

Key tips:

  • stop all work until the debtor settles in full, or agree on a payment plan
  • be proactive when chasing debt – pick up the phone
  • consider taking legal action as a last resort.

In summary

Prevention is better than cure. Agree on payment terms in advance and don’t let debts mount up. Investing in tried-and-tested software like Xero will save you lots of time in the long-run, as it shoulders most of the debt-chasing burden. But you should get involved personally at the first hint of trouble.

Further reading on invoicing:

Iwona Tokc-Wilde is a business journalist.

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