For many small business owners and sole traders – and even for some larger companies – invoicing is an unwelcome chore, even though it’s the part of the trading process that actually brings in the money.
So when a sizeable payment fails to arrive by the deadline, you can be forgiven for wanting to bury your head in the sand; however, time and time again, we see that prompt action maximises your chances of getting back the full amount you are owed.
Here’s our quick guide to the five main actions you should take, which can be remembered more easily if you just think ‘SPEED’…
Stop working for non-paying clients until their bill is settled in full or a satisfactory payment schedule is in place. This is what any major company would do, so don’t be afraid of looking petty or unprofessional; if the customer pays, you can immediately begin supplying them again, if you still want them as a client.
Penalties help to compensate you for the inconvenience of chasing payments, and act as a deterrent for repeat offenders. You can typically add a fixed penalty cost, statutory interest for the full overdue period, and now you can also reclaim any debt collectors’ costs from the debtor too, which can all combine to substantially increase the amount you receive.
Engage with non-paying customers, particularly if you have had a good working relationship with them in the past; at the very least, being understanding in the first instance could put you at the top of their list of who to pay, although it’s often equally true that ‘he/she who shouts loudest gets paid first’.
Explain any action you are taking to your client in writing, for several reasons: first, so they are continually made aware of what they owe you and how overdue it is; second, so you do not face allegations of breach of contract for ceasing supply; and third, so you have written evidence if court action is needed to get your funds.
Debt collectors can take some of the admin burden off, if you find you do not have time to pursue non-paying clients properly. Remember, you can now reclaim reasonable costs from the debtor, so you shouldn’t be left out of pocket for using a third-party or outsourced debt collector.
SPEED: Stop work for non-paying clients, add penalties to overdue invoices, engage with late payers and explain your actions, and hire debt collectors if your client seems unwilling or unable to pay.