If you run a small business, you will know that late payments can quickly turn from an irritation into a full-blown cash flow problem. The government’s response to the recent late payments suggests that there will soon be additional legislation to help deal with the problem.
In the meantime, here are three practical steps you can take that can make a real difference.
1. Make it easy and obvious for customers to pay
Late payments from customers are not necessarily deliberate. At times, they are caused by confusion or missing information.
A few small tweaks can cut down on a surprising number of overdue invoices. For example:
- Put your bank details on every invoice and make them large enough to spot at a glance.
- Add a clear “Payment due by [date]” line in the top section of the invoice.
- Offer more than one payment method if possible.
- Send the invoice on the same day the work is completed. When a job has gone well and the customer is pleased, payment may be more rapid.
2. Set expectations early and repeat them often
Embed payment terms into your communications with the customer throughout the work you are doing for them. For instance:
- Before you start work, confirm the price and payment terms in writing.
- Reconfirm those terms on the quote, on the invoice, and in the first reminder.
If you need deposits or staged payments, say so upfront. Many customers will take this well when it is framed as a normal part of your process. For example, you might say: “We take a 25% deposit to secure the work, with the balance due within 14 days of invoice.”
Chasing overdue invoices feels awkward, so it can be tempting to leave it in the hope that the customer will pay before you have to say anything. However, that can mean leaving it too long.
A routine takes the emotion out and keeps things consistent. For instance, you might try:
- Day 1 after the due date has passed - Send a friendly reminder to check that the invoice has not been missed.
- Day 7 - Be firmer, include the invoice again and ask for a specific payment date.
- Day 14 - Let the customer know that late payment interest may be charged under the Late Payment of Commercial Debts Act. You do not need to actually apply the interest unless it is appropriate.
Some customers will still be slow, whatever you do, but many will respond well when you keep things polite, clear and businesslike.
In conclusion
In practice, managing late payments is mostly about consistency and having a simple system that you stick to.
If you would like a hand setting up reminders in your accounting software or working out a set of payment terms that are fair and easy to communicate, please just let us know. We can look at what you are doing now, suggest a few practical adjustments and help you put something in place that’s straightforward for you and clear for your customers.