How to minimise the risk of late invoice payment or why won’t those pesky clients pay their invoices? | The Chameleon Guide
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How to minimise the risk of late invoice payment or why won’t those pesky clients pay their invoices?

As a small business, there is always a risk our invoices won’t be paid on time. We all curse the big corporates who insist on 90 day terms or who screw our prices to the floor or stop payment because a ‘t’ wasn’t crossed. But the smaller companies can be just as bad for different reasons.

Excuses I have heard for not paying:

‘I didn’t think it was important – it wasn’t that much’
‘My son was in hospital/other variations on illness’
‘I can’t afford to pay you until my customers pay me’
‘I’m changing banks at the moment’
‘The dog ate my cheque book’ (I made that one up, but I feel sure it’s only a matter of time before it’s wheeled out!)

Other reasons include:

    • There’s a dispute over what was delivered vs what was expected.
    • Poor process/administration at their end.
    • They genuinely don’t have the money/other cash flow issues.
    • They ignore your payment terms and insist on paying by theirs e.g. you may have a seven day payment term, but they will only pay on 30 days.
    • They are actually bar stewards who try not to pay on principle or until they are finally forced into it.

I’ve been helping a client deal with some of his unpaid invoices but I hear all the time from others about how people simply aren’t paying them.

This is not the way to behave. If you’re not prepared to pay for a service, then don’t agree to have work done. And there is no excuse for it.  You wouldn’t get very far if you decided one month that you weren’t going to pay your mortgage for example, and paying your suppliers is no different.

It can have a seriously detrimental effect on micro businesses. What may not seem like a large sum of money to you, could be the difference to a small business owner being able to pay their tax bill. One of my clients spent so much time chasing one invoice, it cost him more in his time chasing than what he was owed.

And it’s also hugely stressful. No-one wants to have to chase money or to have those awkward conversations. We feel bad having to chase money and people pulling on our heart strings is all very well, but it doesn’t put food on the table. Whilst we have sympathy with difficult situations, we are in business, and should behave in a business-like manner.

Here are my top tips on how to minimise debt/get your invoices paid on time.

1. Make sure they sign your terms and conditions at the outset
You have got terms and conditions right?
If not, get some written. These set out how your business relationship is going to work; what your commitment to them is and what their commitment to you is. And they should include your payment terms along with the penalties for late payment.
Make sure they understand them and ask before you start any work if they will have an issue with anything. Make sure everything is documented and there is an audit trail. This includes getting them to sign the document and you both keep a copy of it.

2. Process
Have a very clear process in place. Pick one date a month when you do your invoicing and have another to check and chase payments.

3. Use a proper accounting system
Preferably one that sends automatic chase emails on your behalf. They don’t cost a lot these days and can run all your invoicing for you as well, amongst many other benefits. I have auto-chase emails set at two days, seven days and 14 days after the due date. Usually, the second one is sufficient, though often the first reminder prods people into action.
If they still haven’t paid, I gently remind them next time I see them and that usually does the trick.

4. Be very clear about what they are going to get
Before I start a piece of work, particularly if it’s a contract/project, I will send a document outlining the work I am going to do. And as importantly I state what they aren’t going to get so there is no ambiguity. This gets agreed before we move on to the terms and conditions and getting the job running.
This way, if there are any disputes later, you have a clear audit trail of what has been agreed.

5. Extra work/extra fees
Check before you do any extra work that’s not included in your original scope that you want to charge for it and get their agreement (in writing) that they are happy for you to do that before you undertake the work.

6. Get payment up front
Training companies will insist on payment up front, so there’s no reason why you shouldn’t too, particularly when it’s small sums of money. And it’s important they understand that the work will not take place until the money has been received.  As long as they know and have agreed this up front (via your terms and conditions), it shouldn’t be an issue.

7. Split payments into stages
Web design or build companies will often do this. You pay the money in chunks; an amount at the outset, and then staged payments throughout the process depending on how long the work is going on for and then with a final payment on delivery of the finished product/service.
At least this minimises any potential losses. And as with getting payment up front, work does not proceed until the next stage payment is received.

8. Chase aged debt
Don’t ignore it if people aren’t paying you. You do need to chase. And if you don’t have automatic chase emails in place, then you will need to set time aside to look at your aged debt reports and pick up the phone. It’s much more difficult for people to ignore you if you actually speak to them. Emails can get ‘lost’.

9. Act business-like
All the above will help, but this also means not getting into slanging matches. If someone is really annoying you, wait until you’re calm before you respond and then deal with the facts only. Refer them to the scope of work and your terms and conditions. Include any evidence from them that they have signed off work or agreed they are happy with it.

The minute you start trading insults with each other, it very quickly escalates with people taking entrenched positions and heels being dug in and the prospect of payment recedes rapidly over the horizon.

10. Credit checks
Some organisations do credit checks on the businesses they are going to work with to ensure they are solvent and able to pay. You have to have a legitimate reason to do so and it is therefore not possible to do it for everyone. More information can be found here:

11. Dealing with disputes
In an ideal world you will have been communicating well with your customer/client so that any issues are dealt with before they get out of control.
However, you can’t legislate for everything and sometimes things don’t go as well as they should have. In these instances, you should admit that issues have arisen, work out how to resolve them, or if they can’t be resolved by you, you may have to negotiate a discounted rate to reflect the reduction in quality.  But do make it clear (in writing) that is what it is and it’s a one off discount in this particular instance. Otherwise you risk setting a precedent and they will expect a discount every time.

12. Legal action
This is the last bastion of hope if everything else has failed.  Sometimes the threat of legal action can be enough to prompt payment.
If you threaten it and they still don’t pay, you have to make a decision about whether or not to pursue it down the legal route or write it off as a bad debt.

Trying mediation first may be a better option.

You could try and make a court claim (was called the small claims court) which deals with claims up to £200,000. All the information is here.

Hopefully if you’ve got tips 1-11 sorted, then legal action won’t be required. It will cost you money using lawyers or making a court claim (the fees for these can be found here ).

And there’s the on-going stress of having to do the paperwork and angst at trying to get someone to pay. It will have destroyed your relationship with your client and wasted your energy that could have been spent on dealing with your paying clients, or treating yourself to much deserved rest time.

The key to all this is clear communication and documentation from the outset and throughout your relationship with the customer/client.  And if you are consistently having to chase payment from the same customer/client you may wish to consider if you want to continue the relationship. Sometimes it’s better to cut your losses and move on.

If you’d like to download a checklist to help you with your cashflow – you can get it here:

If you have any more tips, do let me know.

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About the Author:

About Karen Espley, blogging for The Chameleon GuideKaren Espley of The Chameleon Guide works with ambitious small business owners on her Profit Accelerator Programme. She brings pragmatic and real world advice in a group setting to help her clients make a significant difference to their business through increasing profits and running a highly effective business.

Offering workshops and group profit programmes for companies wanting to reach their full potential.