Late-paying customers can negatively affect a business in many ways. The lack of timely funds to cover business expenses, employee wages and supplier bills creates uncertainty regarding future spending. The occasional instance of a late-paying customer should not affect a healthy business too harshly, but persistent late-paying customers create long-term problems.
When a customer fails to pay on time, knowing what to do next is crucial to recovering the owed funds while maintaining control of your business’s finances. Below are five actionable steps for your business on how to deal with late payments.
Send A Payment Reminder
Although it is common to assume that a customer who is late with their payment has intentionally avoided paying, it is equally possible that they have simply forgotten about the invoice. Therefore, the first thing to do is send a polite reminder with the relevant information (invoice number, amount outstanding and original payment deadline) and attach another copy of the invoice. Make sure that it is simple for the customer to make a payment. If you still fail to get a response, follow up by sending another polite but firm message with a specific due date for payment.
By being proactive and keeping communication respectful and professional, this method can usually assist in resolving any misunderstandings between the parties without jeopardising an otherwise positive business relationship.
Review Your Payment Terms
Review your initial payment terms listed on your invoice and check the statutory requirements that govern UK business-to-business transactions. Statutory guidelines typically require customers to pay within 30 days of receiving an invoice or the delivery or completion of goods or services. Depending on your specific circumstances, you may be eligible for additional compensation through statutory interest. Be certain to consult the relevant legislation before charging your late-paying customer any fees associated with delinquency.
Escalate Your Payment Request
If the previous tips on how to deal with late payments haven’t borne fruit and you continue to receive no response from your late-paying customer, you must now escalate your attempts to collect the overdue balance. Reach out to the customer via telephone or email and discuss the overdue balance with them. Explain the repercussions associated with failing to fulfil their payment obligations. In cases involving large amounts, you may want to draft a formal “Letter Before Action” or obtain legal advice to explore other avenues of debt collection.
Mediation is an alternative option for situations where there is a legitimate disagreement concerning either the quality of work completed or the total amount invoiced. Keep detailed records of each invoice issued and every form of communication exchanged between yourself and the customer as valuable evidence, should further action against the customer become necessary.
Protect Your Cash Flow
Alongside pursuing payment of any outstanding invoices, examine your own financial situation to ascertain how delayed payments will affect your ability to meet your current and future obligations. Prioritise crucial expenditures for sustaining operations and use your cash flow forecasting to identify areas where cost-cutting measures may need to be implemented. If you are concerned about your ability to fulfil your short-term financial obligations, contact your suppliers and creditors immediately.
Depending on the severity of the potential hardship caused by the delayed payments, short-term financing may provide a means of bridging any gap created by the loss of expected income.
Consult A Professional If the Issue Continues To Escalate
On occasion, delayed payments result from more severe financial issues facing a particular individual or customer. If a customer consistently fails to meet payment deadlines, questions multiple invoices or exhibits signs of financial distress, you may wish to consider whether further pursuit of the money owed is feasible or worthwhile.
If these tips for your business on how to deal with late payment issues haven’t solved the problem, and you continue to suffer from persistent cash flow shortages stemming from uncollected accounts receivable, obtaining expert guidance is key to helping you better understand your options before the issue escalates into an unmanageable crisis. Get in touch with us today for assistance. We can evaluate your firm’s financial condition and outline viable alternatives that could potentially resolve your financial issues.
