The best ways of managing late payment
How can I avoid late payment by my clients?
Late payment is a huge problem, particularly for small to medium sized businesses which may struggle to stay afloat if bills are not paid promptly. Managing late payment of debts is a crucial skill for anyone starting out in business. Fortunately, there are a whole variety of methods which can be adopted to try and prevent late payment becoming a problem in the first place. These include researching a new client to find out if they have a bad credit history - simply checking out their profile on the Companies House website (http://www.companieshouse.gov.uk/) can throw up some interesting information. You can also use a credit checking agency to dig a little deeper. But even if a client is deemed to be creditworthy, it’s important to clarify payment terms right at the beginning of a contract. This allows both parties to know exactly where they stand and helps resolve disputes if they arise.
How do I deal with a client who isn’t paying on time?
Sometimes all the planning in the world still fails to prevent a situation where you faced with having to chase up invoices or debts from a client. It’s important to be diplomatic in these circumstances. Although you may be in the right and would win the argument if it went to court, souring a business relationship may cost you far more in the long-run than simply waiting longer to receive payment. A friendly phone call or email may be all that is required to nudge your client into paying your invoice. If you would like to be a little more formal, a statement of account can provide a useful means of setting out any outstanding balances without getting litigious.
If you have substantial numbers of clients, maintaining organised records of invoices and payments can help to establish a pattern of any bad payers. You may decide to update your terms and conditions with any financially risky clients or even terminate a contract. Taking more drastic steps to recover debt, such as instructing a debt collection agency or going to court, should be avoided as these can be very expensive and will likely bring the business relationship to an end.
Generally in connection with debt collection, you need to be aware that the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 will apply in certain cases to prohibit taking any step seeking payment from a debtor.
A variety of documents which may help with late payments can be downloaded from our Business Documents Folder.