Dealing with unpaid invoices is the bane of many a small business owner’s life. More than half of SMEs report facing late payments on a regular basis, and the average time it takes for most invoices to get paid is a week more than the agreed terms.
Chasing overdue invoices is not just stressful and time-consuming, it also creates a serious drag on business performance. It’s estimated that late payments cost small businesses £1.6bn a year, with many suffering serious financial difficulties or even facing insolvency because of the cash flow problems it causes.
So what exactly should you do in the highly probable event that you face an unpaid invoice?
What’s the best way to get your money as quickly and efficiently as possible?
Adam Home of B2B debt collection specialists Safe Collections talks us through the process.
It doesn’t pay to delay when it comes to chasing overdue invoices. As soon as one becomes late – i.e. the day after the agreed payment term has expired – put in a call to whoever deals with accounts payable. The vast majority of late payments are caused by simple human error – i.e. they forgot. So at this stage you can err on the side of informality, simply reminding them that the invoice is due and politely asking if they can confirm when it will be paid.
Payment terms, or the window for paying an invoice, can be whatever you agree with each client. If you have no formal agreement, the legal default is 30 days after the invoice is issued.
During your first contact to enquire about a late invoice, you should also a) check the client received the invoice ok (another common reason/excuse for late payments, and b) ask if they have any queries or issues with it. Depressingly, many businesses will choose to wait for you to contact them if they have any concerns with an invoice.
If a client does raise any issues, listen to them carefully and show willingness to resolve them promptly. This might involve providing confirmation of the work completed, re-sending documents, correcting errors, or clarifying terms. Good record-keeping, including all correspondence with the client, really helps to speed things up at this stage.
Once you have satisfied any concerns, set a deadline giving a new timeframe for payment. A week should be more than enough.
If a gentle reminder still doesn’t result in prompt payment and your new deadline passes, it’s time to escalate. Next contact should be a formal notice in writing (email is fine) setting out the details of when the invoice was issued, when it was due and your intention now to reissue it with statutory interest and debt recovery costs added. It is your legal right to add these charges on any late commercial payments. Mentioning these additional costs is often enough to push stubborn late hold-outs into paying.
If mention of late payment charges doesn’t do the trick, it’s time to seek professional help. Hiring a reputable debt collection agency doesn’t mean sending the heavies round. At Safe Collections, we do all of our debt recovery via correspondence. We get results because we know the law, we explain the position on behalf of our clients in a clear, professional way, and we’re skilled in negotiation. And, it has to be said, simply being contacted by a debt collection agency carries its own weight.
The key is picking a reputable agency with plenty of experience and a strong track record in B2B debt recovery. Do your research and read reviews from previous clients. If an agency doesn’t have any, steer clear.
Another thing you should avoid is anyone who asks for membership fees, demands a fixed-term contract, or wants any kind of payment up front. At best, it’s unnecessary, at worst, you could be walking into a scam. Like all reputable debt recovery specialists, we never ask for payment from clients because we add our charges to the debtor’s bill, along with interest and late payment penalties. Again, this is all part and parcel of late payment law. There should be no extra cost to your business chasing money you are owed.
What does this look like in practice? Here’s a review of Safe Collections services from Purmo Group Ltd UK, a heating and cooling systems supplier. This was a typical case – Purmo engaged when payment of already late invoices was not forthcoming, Safe added the costs, interest and charges to the debt and demanded payment from the debtor in writing.
The debtor agreed to pay after some negotiation and covered the client’s costs, so our service was basically free of charge.
The nuclear option if debt recovery doesn’t work is to go down the legal route and get the courts involved. We only recommend this as an absolute last resort. The problem is that there are fees involved, which you are not guaranteed to get back depending on what the court’s judgement is. And the process can take a long time, especially with the current backlog in the civil court system.
In summary, while there’s no good excuse for late payments, they are sadly a fact of life most small businesses have to deal with. Arming yourself with knowledge about how to go about recovering money you are owed can go a long way in minimising the disruption and stress it causes. And it’s also reassuring to know that help in the form of both the law and debt recovery specialists like ourselves are on your side.
Debt Collection 101
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