It’s an awkward conversation, and always has the risk of permanently damaging the relationship you have with that client, particularly if the client is a serial late payer, or owes a substantial sum.
What You Need
In order to ensure you can effectively chase for late payments, you will need to have a few things in order. At the bare minimum, you will need:
Terms of Business
Terms of business are one of the most important things you can set out as a business owner. And ensuring that your terms are agreed to in advance is vital. Make sure you have developed terms and conditions that work for your business, and set out exactly what you expect from your customers in terms of delivery and payment. Once you have set these, ensure they are easily accessible (whether that’s an attachment or a link in your email or on your website), and that your customers agree to them before you deliver anything.
Before you engage with a new client, you should set out your payment terms and ensure they are agreed to. These can be put into a contract, your terms and conditions or even in an email that is then agreed to, in writing. To work these out, you should look at what payment terms are generally acceptable in your industry, and what will work best for your business. By having these payment terms in writing, you can make sure none of your clients can claim ignorance if they pay late.
An Interest Clause
Within your payment term, and your terms of business, you should ensure you have a clause that covers interest and recovery costs. Essentially once a payment has been late for a certain number of days (which is up to you, but we usually recommend 7), you should start charging interest on the overdue invoice. This acts both as an added incentive to the customer to get the invoice paid (otherwise they will have to pay more), and the recovery costs will help cover some of the costs of the time spent constantly chasing payments.
If you would like to know more about the chasing payment process, you can download our helpful guide here.
Our Top Chasing Tips
- Ask For Payment. The first step is simple – just ask for payment! While some late payers do so intentionally, many are often the result of something else – an issue with the bank, clerical error, the invoice was misplaced or it was forgotten. Sending a friendly reminder shortly before payment is due is a good way to ensure that everything is on track and they remember about the due payment. If it then becomes late, you can start the chasing process.
- Automate Due Reminders. One of the ways many business owners avoid losing face or offending their customers is to automate late payment reminders. Many kinds of accounting software offer this functionality, and it basically means that all payment chasing reminders are sent by an automated system. This has 2 advantages – the first is that neither you or the customer loses face, since the reminders are being issued by a computer, and not by you. The second is that you will never be late reminding them of the overdue payment, which leaves you in much better standing.
- Reference Agreed Terms. This is where your terms, conditions and contracts are your best friend. When writing your payment chasing emails, make sure you are referencing the terms they agreed to when they enlisted your services or ordered your products. This will remind them that they signed a legal contract to pay for these services, and if they have no grounds to challenge it, remind them that they need to pay now.
- Choose The Right Time. When chasing for overdue payment, timing can be everything. Many businesses, particularly larger ones, tend to do payment runs once a week. Find out when your customer does their payment runs, and send your reminders just before. For example, a lot of businesses do payment runs on a Friday, so Thursday morning or early afternoon is often an effective time to chase.
- Attach The Invoice. When you are chasing payment from your clients, make sure you give them everything they need in order to pay you – or else they won’t. So make sure you are attaching the overdue invoice to your emails, referencing how they can pay you in the email and providing links if you take payment through a portal. Doing this will prompt payment from most late payers.
At Debtcol, we work with businesses who are struggling with late payments or bad debts and to recover the money they are owed. Our team are experienced in all aspects of the debt recovery process, including both payment chasing and the legal follow through procedures that may be necessary. For more information on how to prevent late payments, or to find out how we can help you recover your hard earned money, get in touch with the team today.