5 tips for dealing with late payments

Posted June 25, 2015

Late payments are the bane of a small business owner’s existence. Customers who continually fail to pay on time upset cashflow and can actually place the future of your firm in jeopardy. Here are five tips to help improve the way you deal with late payments.

1. Define a process in advance

Before issuing any invoices you must decide how you are going to deal with payments. How long are you going to give customers to pay? And how long before you start chasing accounts in arrears? Who will do the chasing? And will you take debtors to court to reclaim monies owed (this should always be a possibility, but to what value will you go)?

2. Offer early payment discounts

Some firms find that they can counter late payments by offering a small discount to clients who pay early. If you can afford to do so, consider knocking 2-5% off the bill.

3. Don’t wait to chase

Don’t wait to chase outstanding accounts, or your clients will continue to ignore your invoice. Be polite, be firm but be timely with your follow-up emails and calls, pressing for a prompt payment from the day after the credit period expires.

4. Apply late payment charges

You have the right to levy statutory late payment fees and interest on every invoice that is not paid within the specified credit period. The charges may not be huge, but they will help cover some of the costs you incur in chasing payments.

5. Consider invoice financing

Finally you could consider outsourcing the entire process to an invoice financing business. In return for a percentage of the total, they pay your invoice and then chase your clients for payment themselves. However this service reduces your profits and is usually only viable for commercial invoices (B2C invoices are not usually undertaken).

Make sure you have your invoicing and accounts system clearly and professionally managed so that your payment dates and amounts owed are clear – if you don’t already use FreeAgent or Xero accounting software, consider their benefits. For further advice on all invoicing matters for small businesses, you can contact our expert team at 3 Wise Bears.