One of the greatest bugbears that besets small businesses and freelancers in the UK is late payment (or non-payment) of invoices – a situation that goes beyond inconvenience and turns entrepreneurs into beggars.
How sad to see a business die simply because of payment problems – but it can, and does, happen. The problem is widespread – a MarketInvoice survey found 62.3% of invoices issued in the UK in 2015 were paid late.
Thousands of companies – the backbone small businesses so vital to the UK economy – are having their profits eroded and their cash-flow turned upside down by having to spend time and money chasing late-paying clients. Not only the survival of businesses, but also the livelihood of employees, depends on prompt payment.
So if you are finding late payment an ongoing problem that is impeding the progress and growth of your business, what can you do to make your creditors pay up?
Firstly, from your side, you need to ensure that your client is fully aware of the terms of your payment agreement, especially how long he/she has to pay, and that your invoicing is accurate and in order.
Where and if possible, ask for an upfront deposit before you proceed with the sale/service you are providing. Also run thorough credit checks on the client before you put him/her on your books.
It’s certainly not wise to pick up the phone and verbally lambaste a client whose payment is a matter of days late. He or she may well have a legitimate reason, or there may have been a genuine mistake with the invoicing. All you will succeed in doing is losing the client altogether – and probably a wide circle of his/her aquaintances and friends who may have been potential customers.
The same goes for “bad-mouthing” your defaulting client around your social circle, and – even worse – broadcasting on social media that he/she is a credit risk. This could even get you sued for libel!
So rein yourself in and take the polite approach. Send an email (or letter in the unlikely event of there not being an email address) as an initial gentle reminder. You might follow this up after a few days with a phone call, and if necessary another email (letter) or two.
If you’re still getting the run-around after thirty days or so, you can up the ante a little by becoming more formal in your communication, and giving a set payment period (seven to 10 days is acceptable).
If this doesn’t work, try to elicit a reason for non-payment from the client, and offer an instalment plan.
Your final recourse is to file a suit in the small claims court, or hire a debt collection agency. The easiest route (if the amount involved is less than £100,000) is to institute your claim online via the Government Gateway.
If your client still doesn’t pay up after receiving a letter from the court ordering him/her to do so, a County Court Judgment will be issued against him or her. This doesn’t necessarily guarantee you will get your money, however.
If things reach the final stage and you take your client to court, it is a sure bet that will be the end of your business relationship, so it’s worth considering if the debt is worth losing the client for.