It’s happened to many of us at one time or another. You deliver a piece of work, congratulate yourself on a job well done and fire off an invoice to the customer.
A month passes and suddenly you realise payment is overdue. You send a reminder email. You call and leave a voicemail. You send a statement of account in the post. Nothing. You’re owed a lot of money, but your customer, it seems, has vanished off the face of the planet.
What are your options when it comes to non-payment?
The majority of payment problems can be addressed with some simple cashflow management strategies.
The first thing to remember is that once work is finished your client legally owes you that money. The payments terms you give them (eg 14 days, 30 days, etc) is you granting them interest-free credit. Essentially, you’re doing them a favour. That money is yours and it’s their responsibility to pay you promptly.
Issue your invoice as soon as your work is completed. If you wait a week, that’s another seven days of credit – and another seven days before your bank account will be replenished!
A week before your invoice is due, chase it up with your client. It needn’t be a demand – send your client a brief, friendly email asking if they had any follow-up comments on your work and remind them about your invoice.
If the payment deadline comes and goes with no sign of your invoice, don’t panic. It’s actually remarkably rare that a business will be actively withholding payment intentionally. More likely, your invoice has been lost in a stack of paperwork or your customer could be waiting themselves for money to come in before they can pay you.
Politely remind them about your payment. Point out it is now overdue and in most cases, this will be enough for payment to be forthcoming.
Sometimes, regrettably, you will have to turn debt collector to recover money. Luckily, there is legislation that can help you out. The Late Payment Directive was updated in March 2013 and now gives more power than ever before to small businesses that are attempting to recover commercial debt.
Businesses can charge interest at 8% above the Bank of England base rate after payment terms expire, as well as levy a one-off penalty of up to £100 depending on the size of the contract.
For the first time, businesses can also reclaim any costs they incurred while recovering the debt – so if you are forced to employ a credit control firm to chase a non-payer down, it will be your customer who pays for their services.
Blog supplied by Darren Fell of small-business tax specialists Crunch Accounting.