Being proactive in your business processes can lessen the probability of having to bear the burden of chasing invoices:
1. Clear invoice payment terms
It’s always best to start off with transparent expectations from your customers. Whether you expect full payment upfront, or upon completion, or at a set date after the invoice is sent. You should mutually agree with your new customer prior to any goods or services being provided. As a safeguard and proactive measure, you should also ensure that there is a paper trial to these agreed-upon terms.
2. Implement late payment penalties
Nothing prevents an over due invoice like the potential of incurring further charges. Late payment penalties not only work as a deterrence, but when implemented they help to cover the costs to your business of chasing invoices.
As suggested by gov.co.uk; you are within your right as a UK business to implement an 8% fee, plus the Bank of England base rate for B2B transactions. You might choose to implement smaller, fixed fees, such as X% upon 30 days of no payment, then the same again for every 30 days that is missed. On top of this, you are also able to implement a fixed sum for ‘debt recovery costs’ which is dependent on the amount owed to you as outlined below;
|
Amount owed |
Amount you can charge |
|
Up to £999 |
£40 |
|
£1,000 - £9,999 |
£70 |
|
£10,000+ |
£100 |
3. Ensure your contact information is up to speed
During your earlier payment terms conversations, hopefully you will have gained some insight into how each of your customers would like to be contacted, and who is the correct person to send an invoice to. Maybe the accounts department prefer a paper invoice, or need a purchase order number before they can make the payment. Knowing this information upfront can lessen the likelihood of a missed payment whilst also making it easier when you come to chase invoice, knowing that the error is not likely to be on your part.
4. Automate payments and offer convenient multiple payment methods
So you know who to contact in the company to pay an over due invoice, but have you considered speaking with the higher management in the accounts dept to see if another method of payment would better suit them? Automating payments not only reduces the potential of invoice chasing, but also reduces time and resource for your customer.
Taking a regular Direct Debit leaves you confident in your cashflow projections and leaves your customer assured that their payments are taken as a matter of course. If you do not currently offer multiple methods of payment to your customers, you should consider implementing a payments service that can do this for you. At Access PaySuite, our solutions enable you to spread the cost for your customers with Direct Debit whilst giving you transparent cash-flow projections.
5. Consider your communication methods
Chasing payment can be an awkward conversation. In order to ensure a smooth communication, you should consider how you contact your customer when invoice chasing. If, as mentioned above, your customer prefers to be contacted via post, sending an email might not be the right way to get a response.
Whichever way you contact your customer, the first reminder should be sent shortly after the expected payment date is missed and be framed in a friendly but firm manner ensuring they are made aware of the penalties for missing payments. Hopefully it will simply have been overlooked and they will recover the payment promptly. If this isn’t the case, further attempts should be made in their preferred method of contact, moving to other methods of contact in the case of no response (phone, text, email, post), gradually increasing in severity.
The final warning for a customer must be as a written formal letter, and must include information on prior communication attempts and a cut-off date for payment before you will take further action, and what that further action will be in detail.
6. Further/legal action
Following the final letter of warning and still no payment received, you can now implement legal action. Mediation is a great option to begin with, with a neutral third party who will ensure things progress but has no opinion or control of the outcome. This will hopefully end with a ‘settlement agreement’ which will detail the outcome of the events.
Should no agreement be made, or mediation not take place, you can serve the company in question with a statutory demand which allows 21 days for a response. If there is no response to this, you can start bankruptcy proceedings against an individual or wind up (liquidate) a company if they owe in excess of £750.
A final tactic for chasing invoices is to make a court claim against the debtor, often referred to as the ‘small claims court’. You will need to prove that you have reached out and requested payment for the over due invoice in a timely manner. The debtor will have 14 days to respond to your claim.
In the unlikely event that you should continue working together after this, you can request that all future invoices be paid in advance (PIA).
Overall, chasing payment from over due invoices is high effort and can cause friction. We hope that our tactics prepare you in advance of non-payment yet equip you with the knowledge of what to do should you need to chase payments.