When a client fails to pay their invoice on time, what should a small business owner do?  Many people find this an uncomfortable position to be in, and often will take a “head in the sand” approach and hope that the problem will go away on its own.  Sometimes this is fine – the late-paying client will usually settle their invoice when they can.  However, allowing late payments on a regular basis can cause problems in the long term.

Cash flow is crucial to any business.  Not receiving payments when expected can have all sorts of negative effects on other business relationships.  Perhaps a payment to a supplier is due, and you were relying on using funds which just haven’t arrived yet?  You might have to renegotiate terms with the supplier, or dip into an overdraft – potentially incurring bank fees.  And all because your client failed to pay on time.  What is the best way to deal with this happening?

Dealing with late payments – possible options

Chase invoices promptly

Most small businesses hugely value their relationships with their clients, and it may feel awkward or damaging to chase them for payment.  But there is nothing wrong with sending a casual reminder after the invoice due date has passed.  Most of the time, clients will quickly apologise and settle the invoice, so it’s always good to start by giving them the benefit of the doubt and assuming an honest mistake.  There’s no need to ignore late payments for the sake of client relations, especially when some polite communication and an assumption of good faith can quickly resolve the issue.

Communicate with the client

If chasing the invoice didn’t work, it may be worth reaching out to them and communicating openly.  If the client usually pays on time, it may be an isolated incident.  Ask them about why you haven’t been paid yet, as well as when they plan on doing so.

Stop working for the client

If the client remains unresponsive to your attempts to receive payment, you probably shouldn’t continue working for them.  Send them a message to let them know that you will halt any type of work until you get paid; once you’ve received what you’re owed, then you can proceed with your assignments. If you would prefer not to work with that client any longer, as trust is likely to be gone, then you might want to terminate your contract instead of finishing up the project

Add late payment fees

If you still don’t see any results, you can write a formal letter to your client announcing that you will charge them statutory interest if they still haven’t paid you by a specific date and time.  You are entitled to claim statutory interest at 8% above the Bank of England base rate.

Debt collection

At this point, maintaining a good relationship with your client probably isn’t your priority anymore. To help receive your payment, you may want to go down the debt collection route. Don’t hesitate to pursue this ‘last resort’ if all else has failed – send the debt to a collection company that will manage the issue for you by seeking payment on your behalf.

In future – how to minimise the risk of late payments

Make it easy for clients to pay you

There are lots of payment methods available, so ensure your chosen method is common enough that your clients won’t find it difficult to use. You can set up payment by bank transfer, card, PayPal, and so much more, so invest in something convenient for both parties. Security is crucial as well so, if you’ve opted to be paid via digital payment, make sure your clients are taken to a secure page they can trust.

Send out invoices promptly

Don’t wait to send invoices to your clients; as soon as you finish the work, send them an invoice.  Include information on statutory late payment interest in order to prevent payment delays.

Research potential new clients

In order to prevent future issues, make sure that you thoroughly research any client that you’re thinking of taking on. You should already be studying their services and products, social media presence, and more, before deciding that they’re the right match for you and your skills.  You will want to analyse their reputation as well – for example, by checking online reviews.

Use a good bookkeeping tool

At Exonia we prefer Xero, which makes it very easy to see if your clients are paying on time.  You can easily view a summary of what you’re currently owed, see totals of overdue invoices, or check individual clients and invoices to see their status.