7 min read
There’s nothing more frustrating than having customers who won’t pay their bills. Here’s what you can do when this happens.
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It’s helpful to understand why a customer isn’t paying your invoice. It could be:
All of these circumstances are unacceptable – cash flow is the lifeblood of any business, so you need to have a strategy for chasing customers for payment.
Prevention is better than cure – make sure that you’re doing all you can to stop late payment becoming an issue in the first place:
Take a systematic approach to chasing payments. Login to save this checklist to your profile for future use - as you work through the list, any checkboxes that are ticked or unticked will be automatically saved to your profile. (To register to join and enjoy the benefits of membership click on the link at the top right of the page. It will only take a few minutes to create your profile).
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Here are some of the common excuses for not paying and what you can do about them.
By following our earlier advice about sending an invoice as a hard copy and also via email, the likelihood of the customer not getting it is minimal. If you get a receipt of delivery for your email you’ve proved that it was delivered! In any case, send it again and call straight away to check they’ve received it, and confirm when it will be paid.
By not including all the information that’s required on your invoice or bill, you provide customers with the perfect excuse not to pay. Make sure your invoices include every piece of information that’s needed.
Businesses nearly always have someone who’s authorised to sign-off payments in the absence of the person who normally does it, so it’s worth querying this. You could also ask for the email address of the responsible person so that you can drop them a line to let them know that payment is overdue and ask them to authorise it within a couple of days of their return. Politely point out your payment terms.
Promises, promises! Sounds like this creditor’s being given the run-around. If this happens to you, make a note of precisely when you called, and who you spoke to. Send details of this in a letter and/or email, clearly stating that you require payment by a specific date. Evidence of your attempts to get payment could be very useful if you decide to take legal action.
Persistence often pays off. The more times you politely remind a customer you need paying, the more chance there is of them paying you next instead of another creditor who’s not chasing as often as you are!
In these situations it can be worth expressing sympathy about their cash-flow problems, but reminding them that your arrangement (even if it’s just a verbal agreement) is with them, not with their client. Ask them how much they can pay now, and try to get them to agree to pay off the rest in stages. Again, the more persistent you are, the more likely they are to prioritise paying you.
By following our earlier advice about sending an invoice as a hard copy and also via email, the likelihood of the customer not getting it is minimal. If you get a receipt of delivery for your email you’ve proved that it was delivered! In any case, send it again and call straight away to check they’ve received it, and confirm when it will be paid.
By not including all the information that’s required on your invoice or bill, you provide customers with the perfect excuse not to pay. Make sure your invoices include every piece of information that’s needed.
Businesses nearly always have someone who’s authorised to sign-off payments in the absence of the person who normally does it, so it’s worth querying this. You could also ask for the email address of the responsible person so that you can drop them a line to let them know that payment is overdue and ask them to authorise it within a couple of days of their return. Politely point out your payment terms.
Promises, promises! Sounds like this creditor’s being given the run-around. If this happens to you, make a note of precisely when you called, and who you spoke to. Send details of this in a letter and/or email, clearly stating that you require payment by a specific date. Evidence of your attempts to get payment could be very useful if you decide to take legal action.
Persistence often pays off. The more times you politely remind a customer you need paying, the more chance there is of them paying you next instead of another creditor who’s not chasing as often as you are!
In these situations it can be worth expressing sympathy about their cash-flow problems, but reminding them that your arrangement (even if it’s just a verbal agreement) is with them, not with their client. Ask them how much they can pay now, and try to get them to agree to pay off the rest in stages. Again, the more persistent you are, the more likely they are to prioritise paying you.
The amount of interest you can charge a business for late payment for goods or services – known as ‘statutory interest’ – is governed by regulation. This amount is currently 8% plus the Bank of England base rate for business to business transactions.
So, for example if you’re owed £1,000, the annual statutory interest would be 1,000 x 0.085 (using the base rate of 0.5% at the time of writing) = £85.
To work out the daily interest divide £85 by 365 = 23p per day.
So the statutory interest on a payment that’s late by 60 days would be 60 x 23 = £13.80.
To find out more about charging interest on late payments, go to the Late commercial payments: charging interest and debt recovery section of GOV.UK.
Can I add additional charges to cover the time and effort involved in chasing a late payment?
As well as charging interest, you’re entitled to charge a late-paying business a fixed sum for the cost of recovering a commercial payment. At the time of writing this amount is:
You could use the services of a specialist and reputable debt collecting agency. Some businesses prefer this, as it means that they don’t have to get involved personally in potentially awkward and confrontational conversations with customers they want to keep a relationship with.
You can use a debt collecting firm on a one-off or regular basis. Obviously, they will charge you for their services, and a one-off recovery is likely to be significantly more expensive than an on-going agreement.
Some agencies only deal with overdue payments, not disputed ones. For the latter, you may need to consult a solicitor who specialises in debt recovery. If you decide to use an agency or a solicitor, before you sign-up, check what their process is to make sure that they won’t just steam ahead with legal action before they’ve investigated the reason for non-payment, and consulted you about what action to take.
To find a debt collection agency, go to the website of the Credit Services Association.
To find a local solicitor who specialises in debt recovery, go to the Law Society’s solicitor database.
Finally, the Chartered Institute of Credit Management (CICM) has created a useful guide on what to do when all else fails. Click the button below to download.
In your experience, what’s the most effective way to get customers to pay overdue invoices? Select one answer from the list below.
This vote is not an opinion poll, but a way for you to compare your views with other small business owners.
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