Are you fed up with clients failing to pay your invoices on time? We hear you. Late payments wreak havoc on cash flow and can harm your business, so it’s time to get your debtors in check.

We appreciate that it feels awkward, but remind yourself of this:

 Getting paid on time is crucial to your cash flow and the viability of your business. If clients don’t pay you on time and you end up with negative cash flow, your business could fail. You’ve done the work, your client is happy, so you deserve to be paid on time. You are not being rude by reminding a client to pay your invoice. If anything, they’re being unprofessional by leaving it unpaid.

We all need a pep talk sometimes!

Preventing late invoice payments

As the saying goes, ‘prevention is better than cure,’ so before we progress with chasing unpaid invoices, here are a few tips to reduce the chances of late payments in the first place.

• Outline your invoice terms to clients in writing.
• Include how much you expect to be paid, what types of payment you accept, how long clients have to pay your invoice and what happens if they don’t pay on time, e.g., late payment fees.
• Send your invoices on time – automation can be your best friend here, so consider using cloud accounting software to send invoices and polite reminders electronically.
• Carry out credit checks on prospective clients before agreeing to work with them.

Chasing late invoice payments

“Can I ask a client to pay me?” “How can I chase an unpaid invoice politely?” “Will I lose them as a client?” If you’ve got these questions, know that you’re not alone. Most business owners find chasing unpaid invoices uncomfortable, but as we said at the start of this article, this needn’t be the case.

Step 1 – Write a payment request email or letter

The best approach to chasing a late invoice payment is to open communications with your client. Write a short email (or letter if you prefer) politely reminding your client of the unpaid invoice. State that the invoice is now overdue and ask when you can expect payment. Consider re-attaching the invoice for convenience, but don’t overthink your message or justify why you need it to be paid.

Step 2 – Send a statement of accounts

Are your clients’ unpaid invoices mounting up? Be sure to send them a statement of accounts showing all their outstanding (and overdue) invoices on a single document. This is something you can produce and send with cloud accounting software. But if they ignore your payment request email, they’ll likely ignore this, too. So, move on to step 3 swiftly.

Step 3 – Be brave and call your client

We can see you wincing but hear us out. If, following your written attempts, your client still hasn’t paid you, it’s time for the dreaded phone call. Businesses that chase debtors by phone tend to get the best results. Of course, clients could screen your call, but if you get them on the line, you will likely come to a resolution.

Politely ask your client if there is a reason, they haven’t paid you yet. Perhaps it’s just been overlooked. Maybe a key staff member is off sick, and the rest of the team hasn’t picked it up? Or their business could be in trouble.

Once you understand the reason for the late payment, you can find a solution together. You might get an apology and receive payment into your account immediately after the phone call. Or, if your client is having a few issues, they may ask if they can have a little longer to pay you or break the payment down into instalments. It’s up to you how you work it, but make sure you follow it up in writing and alter your accordingly. See our Cash Flow Blog

Step 4 – Charge late payment penalties

Remember, at the beginning of this article, we highlighted the importance of writing clear invoice terms? This is where they come in. If a client fails to pay you on time and you communicated late payment fees within your invoice terms, you have a right to charge them.

 At this stage, you can re-send your invoice with the late fees added. Outline what you have added (referring to your invoice terms) and highlight the new total outstanding.

If you want to be polite and maintain a positive business relationship, you could waive the fee if the client pays immediately. Again, this is at your discretion and largely depends on whether you want to work with the client again.

 Something to think about: Is the client a serial payment dodger? If so, do you want to work with them again and risk not being paid? In such cases, it might be worth charging the late fees and potentially cutting future losses.

Step 5 – Consider your next steps

If your client doesn’t pay their invoice after all these attempts and additional charges, you need to consider the most appropriate action for your business. This is where it is wise to have a debt recovery action plan – something our experienced hybrid accountants at Kale Accountancy can assist you with.

Actions to support debt recovery may include:

• Cease carrying out any further work or providing any products or services until they pay your invoice/s
• Informally attempting to resolve the matter through negotiation/mediation
• Commence court proceedings after taking legal advice
• Hiring an external debt collector to recover the unpaid invoice (but remember they will take a percentage)
• Writing off the debt (this is rarely the best option, and we recommend seeking advice from an accountant)

Chase unpaid invoices the easy way

Dealing with debtors and chasing unpaid invoices is easily one of the worst parts of running a business, but it doesn’t have to be as stressful as it seems. Try our 3-pronged approach:

1. Use cloud-based accounting software for automated invoicing and payment reminders. If you hate the awkwardness of chasing unpaid invoices yourself, create email templates and use accounting software to send them to late-paying clients for you. You can also use accounting software to keep an accurate record of the status of your invoices.
2. Implement a debt recovery procedure and write it into your T&Cs. Your business needs a clear plan to recover unpaid debts, from sending polite written reminders to taking legal action. Ensure this debt recovery procedure is written into any contracts or terms and conditions when signing new clients so it is clear what will happen if they do not pay for your products or services.
3. Get your bookkeeper or accountant on the case. One of the benefits of working with hybrid accountants is that we will save you time chasing late payments. Our team of experts will support you in streamlining your invoicing process and establishing credit control best practices to increase efficiency and minimise cash flow problems at your business.

Book a free consultation to discuss your unique needs so we can determine the best next steps to take to ensure your financial success.