Keeping on top of your invoices is hard enough, which is why outsourced credit control can be a useful service for businesses of any size – but if you’re handling your own finances one of the big questions can be when debt recovery is the best route to go down.
That’s not to say you should simply let non-payers off the hook – and it’s worth remembering that chasing one late or unpaid invoice can send a clear message that non-payment will not be tolerated in the future.
But it’s also important to take a sensible approach, so just when is it time to chase a debt?
We mentioned credit control up top, and whether you outsource credit control or handle it yourself, the intention is the same: to invoice promptly and correctly, and keep up to date with any reminders until the full amount is paid.
This isn’t something you can do retrospectively, and it’s worth doing across the board, on smaller invoices to make sure you get paid on amounts that would not be worth chasing, and on larger invoices simply because they’re a bigger part of your cash flow.
If (and when) a payment is missed, you have a decision to make, and the first sensible step is to contact the customer and politely ask if payment will be made today or not – it might be an oversight, or a case of waiting for the payment to process.
Be clear about the final final deadline for payment – it’s typical to allow an additional seven days for any one-off delays that might have occurred due to banking errors and so on.
You might want to give trusted clients the benefit of the doubt, especially if they have a blemish-free payments record in the past.
It’s your business, so trust your own instincts; if you honestly think the customer will pay in full given 24-48 hours extra, it’s probably not worth taking them to court first thing in the morning.
If all else fails…
If you’ve chased it up, set a final deadline and given all the benefit of the doubt that’s deserved, and the invoice still isn’t paid, then it’s time to consider formal debt recovery proceedings.
Historically, it wasn’t worth chasing small debts, but that has now changed, because you can claim back any reasonable debt recovery costs from the debtor, rather than funding them from your own pocket.
Combined with statutory interest and penalty fees, this can leave you receiving more than you were originally owed – and the debtor will definitely think twice about doing it again, once they experience those penalties for the first time.
It’s still your own decision when to instigate formal debt recovery, but the more late-payers and non-payers who face such action, the more the business world as a whole will smarten up its payment practices.
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