As the saying goes, timeliness is next to godliness. Unfortunately, though, not everything goes smoothly in business.
Late payments are a common occurrence from time to time. Be it due to struggling clients, processing delays, or simple mistakes, every business has dealt with some form of late payment in its lifetime. It’s a tricky, awkward situation that requires tact, sincerity, and understanding. With 36% of businesses facing cash flow issues due to late payments*, it’s important to deal with such things promptly, and safely.
To prepare you for such a circumstance, we’ve prepared this list of tips on dealing with late paying clients, including how to chase late payments, when, and how to reduce the likelihood of them happening in the future.
Before going ahead and starting the late payment process, it’s worth spending a few minutes verifying your client’s outstanding balance. Total up all the payments received to date, and cross-reference any recent bills and amounts owed.
This will allow you to confirm that they do indeed owe you money, and exactly how much is owed.
Remember, not all late payments are intentional. While we do concur that there are cases where clients make a conscious decision to not pay their bills, this isn’t the case for everyone. We’re only human, after all.
As soon as you’ve confirmed that your client owes money, you should contact them right away. Phone calls are often preferred in this instance, especially if you need the money soon. While on the phone, keep the conversation friendly and light.
Inform them that a balance is overdue and that they need to make payment as soon as possible. If you can, set a date for when the money should be paid and follow up your call with an email documenting what has been discussed. This will keep a paper trail for you to refer to if things go south.
It’s a rare occurrence, but sometimes the fault doesn’t lie with your client. While on the phone, ask them to confirm the payment details they have on file. A single digit out of place can cause your money to end up in the wrong hands.
These days, banking and payment processors have checks in place to ensure money ends up in the right place, but mistakes do happen.
So, you’ve called and emailed, but your client still hasn’t paid. If your efforts have proven fruitless thus far, it’s your responsibility to stay in touch with your client.
Continue to be friendly and understanding, but at this stage, do highlight that if your payment continues to be delayed, legal action may be taken. Of course, no one wants this to happen. Legal battles are costly and time consuming, so it’s possible that mentioning it may speed things up.
Depending on the size of the invoice and the amount of work outstanding for your client, you may wish to stop working with them. This additional pressure may be just what’s needed to get them to pay.
Clearly, outstanding invoices are a headache. In fact, we discovered that 73% of medium-sized enterprises (SMEs) suffer from late payments from customers, at an average value of £68,715*. But, there are ways to prevent overdue accounts from being such an issue in your business.
Before entering into business with a new client, you should figure out if they’re reliable.
There are many services available that will allow you to do this. They’ll conduct a soft credit check of a company and report back to you on the findings, while also assigning a level of risk.
This can be done manually, but it involves a lot of pieces to the puzzle. There’re credit bureaus, for one, which often sell data about companies to other parties.
Before delivering any work to your clients, be sure to clear up any confusion about when you expect to get paid. Set out the date, notice periods, and payment methods.
If possible, avoid cheques. Cheques can easily be rejected at the point of being cashed in, leading to a loss of funds.
Highlight the importance of electronic transfers, a more reliable method than cheques.
One common cause of late payments revolves around the plain fact of human error. We humans make mistakes, it’s inevitable. So, having automated procedures in place to reduce the risk of human error is highly preferable.
Scheduled reminder emails, follow-ups, and payment notifications are all valuable automations to set up ahead of time. This level of proactiveness will also allow you to focus heavier on other parts of the business, with your finances being handled almost automatically.
If you rely on scheduled payments (and most businesses do), late payments can put a large strain on your resources. That’s why it’s so important to build a savings buffer to fall back on.
Instead of having money sitting in a current account, business savings accounts allow you to store any unused capital, all while allowing that money to earn interest as time passes. This means that, even while the leftover funds aren’t in use, they’re still earning money.
We appreciate the awkwardness of chasing for payment. If you need a starting point in getting your unpaid invoices dealt with, you could try this email template:
Dear [client name],
I/we wanted to inform you of the outstanding payment that’s currently due for the services I/we have provided.
We really value our partnership, however, it has come to our attention that payment is now [days] overdue. Timely payments allow us to continue our high-quality services for clients such as yourself.
To prevent delays or disruption in our services, we kindly ask you to make payment at your earliest convenience. If for whatever reason you are unable to make payment, please contact us and we will work with you to figure out a plan.
Thank you for your cooperation. We look forward to continuing our work with you.
Attached to this email is a copy of our invoice details, along with payment instructions.
Regards,
[Your name]
While late payments do cause cash flow issues, we at Aldermore are on a mission to make your business finances painless. From invoice finance to asset finance, we’ve got products to help you unlock tied-up cash or bridge a financial gap.
We also offer business savings accounts to store your hard-earned cash and keep it working for you.
*Source: Research conducted by Opinium on behalf of Aldermore between 24 October – 08 November 2023 of 1,000 SME Senior Decision Makers.
Subject to status. Security may be required. Any property or asset used as security may be at risk if you do not repay any debt secured on it.