Ways a debtor avoids paying
Late payment is bad enough, but all too often a debtor avoids paying completely – or at least tries to – and this can leave you with a mountain to climb when trying to get your money out of them.
But remember, if they are legitimately a debtor to you or your company, then that money is rightfully yours and almost any excuse they provide is simply unacceptable.
Here are some of the ways a debtor avoids paying and what you can do about them.
1. Lose the invoice
Probably the most common claim is that the invoice either got lost, or never arrived in the first place. Almost always a contrived excuse, this is however a legitimate concern when sending paper invoices through the post.
You can overcome it by following up to check the invoice arrived. Whether or not you send a paper invoice, if possible you can accompany it with an electronic copy, either as a PDF email attachment or within the body of an email.
Switch on read receipts or ask the recipient to confirm they have received the email – and if you still don’t get confirmation, follow up within a few days with another email or a telephone call. You don’t have to wait until the invoice deadline to check that the debtor has actually received it.
2. Raise a dispute
It’s funny how debtors almost always raise disputes with the work you carried out on invoice deadline day, and not before – it’s almost as if they’re just using it as a way to delay payment.
You can pre-empt this in your terms and conditions, by making clear that any disputes should be raised immediately, and that once completed, the work must be paid for if no objections were made before completion.
If you are in an industry where disputes on deadline day are a common occurrence, consider asking for a deposit or even part payment upfront – in some creative disciplines it’s not unusual to see upfront payment of 50%, which can be a big boost to your cash flow even from clients who pay on time.
3. Find an invoice error
This is another legitimate concern – if you put the wrong name, address, amount or date on your invoice, or you provide the wrong purchase order number, for instance, then it becomes much harder to enforce payment.
We have seen debtors reject invoices because they were addressed to an individual who no longer worked there, instead of to the company, or because a shortened version of the company name was used.
You can’t do much about this retrospectively, so make sure you get the details right first time, and again have terms and conditions in place to protect against as much as you reasonably can in this area.
4. Go on holiday
It doesn’t have to be summertime for your invoice to be delayed because the owner of the company has gone on holiday for weeks at a time.
For ‘owner’ you can also substitute any other individual who might be responsible for authorising payments to creditors – and with very small businesses, this might be an honest, if annoying, reason for delays.
The company should have made alternative arrangements though, so if you are unable to make any progress and they refuse to provide you with a date when the relevant individual will be back and can authorise your payment, it’s worth sending a debt recovery letter just to show you mean business and will not wait forever.
It’s impressive how many companies can suddenly find an authorised person to make the payment, when a debt collection agency letter arrives in the morning post.
5. Run out of money
Especially when you provide goods or services that are then sold on, there can be a tendency for your debtors to think they don’t have to pay you until they receive payment themselves.
Some companies’ cash flow will be so bad that they literally cannot pay you until they get paid – one of the reasons why we talk so regularly about the importance of improving your cash flow, so that you can cover your outgoings on time.
Again, a deposit or partial payment upfront can take the edge off, and be firm in launching debt recovery action if you think the debtor is really trying their luck.
The adage in debt collection is that “he who shouts loudest gets paid first”, so don’t let your invoice get pushed to the bottom of the pile by being too reasonable in the face of outrageous excuses for non-payment.
6. Pay by cheque
This is the flip side of claiming the invoice was lost in the post: claiming the cheque was lost instead.
If you have a client who insists on paying by cheque, ask them for confirmation when the cheque is mailed out to you, including the cheque number so you can compare it with the one that actually arrives.
When (or if) a cheque actually arrives, pay it into the bank immediately and make sure the funds clear – if you have a lot of payments going in and out, it’s easy to miss a bounced cheque, so don’t be made a fool of.
7. Close the bank account
There are legitimate reasons for a business to switch bank accounts, and while it might introduce some delays to the usual invoicing process, these shouldn’t be enough for a payment to go beyond the agreed terms.
Make sure you have the new account details as soon as possible, so that you can trace the payments coming into your bank and confirm that the overdue invoice has been paid.
And make a note of this excuse – after all, it’s unlikely that a business will change banks twice within a couple of months, so if you hear it again even up to a year later, it should arouse even more suspicion.
8. Pay ‘priorities’ first
To some companies, bigger invoices are perceived as priorities – pay the big suppliers first, keep the lights switched on, and deal with the little guys later.
If you’re one of the ‘little guys’, this is a problem, and it’s not actually fair. If you invoice for work done on 30-day terms, you should be able to expect payment within 30 days.
Remember, the louder you shout, the sooner you get paid, so – especially if you don’t want or need repeat custom from the debtor – if you can’t be a priority, be an annoyance, and in many cases you’ll get paid much sooner.
9. Go bust
If a debtor goes bust, things get a lot more complicated. You may be able to claim what you are owed from an individual company director, but often the whole point of being a limited company is to prevent this.
You may also have a direct chance to claim if the company is sold as a going concern, complete with its outstanding debts, so don’t assume a change of ownership quashes any outstanding invoices.
In any case, look into making a claim as a creditor of the company as early as possible when you learn it has gone into administration or liquidation, and you can make sure you get your share of any funds that are raised.
Finally, encourage prompt payment as a matter of course – the less time your invoices remain outstanding, the less risk there is of a non-paying debtor going into administration.
10. Do a runner
The worst case scenario is when a debtor has disappeared completely – their business premises are empty (if you ever had a physical address for them in the first place) and they have stopped returning calls or emails.
You might think there’s nothing you can do at this stage, but you still can – the statute of limitations gives you six years to track them down and start debt recovery action, so don’t give up too soon.
At the Cash Protection Agency we provide Tracing services that can help to find debtors, no matter where they have tried to hide, and we are experts in chasing aged debts that are close to the six-year limit, so that you can show you have taken action and avoid letting the debt expire.