Accountant Hasib Howlander offers a step-by-step guide to making sure you get paid
According to the Office of National Statistics, three in five small businesses in London go bust before their fifth anniversary — so it’s vital to make sure you’re paid on time.
If you run a small business you’ll know an unpaid invoice can impact on the entire livelihood of your business.
So how do you manage clients who are late in their payments? And how soon should you confront them over unpaid invoices?
Check your procedures first
Before contacting clients, make sure they are indeed responsible for the unpaid invoices. If you contact a client prematurely over unpaid invoices, only to find your own company is at fault, not only do you appear unprofessional, you may also lose their business in future. Double-check payment amounts, bank details, addresses and emails to ensure invoices were actually sent. It’s a good idea to make a copy of these documents, should you need to escalate the issue further down the line.
Banks also occasionally encounter problems, so a brief phone call should rule out this possibility.
Check your client
Having checked your own procedures, it’s time to contact the client. Though important to contact them early, it’s equally important to consider the client you’re dealing with beforehand:
- How long have you done business with them?
- How strong is your relationship with them?
- How important is their business to you?
- Do they have a reputation for unpaid invoices?
- Have they been guilty of unpaid invoices between your businesses before?
It’s worth considering the above and more before contacting your client over their unpaid invoices as, according to American Express, 28 per cent of supplier-client relationships become tested as a result of cash-flow dilemmas.
Initial contact
First, contact clients through a carefully worded, courteous email around 48 to 72 hours after your initial deadline. This maintains your company’s professionalism without harming future business opportunities by appearing prematurely pushy or threatening. It’s important to remember clients are business associates but they’re also just people. They may have been unable to pay for any number of reasons – personal or professional — and your email should reflect this understanding.
Start to escalate
If, after a week, there’s still no sign of payment, it is acceptable to start escalating your approach. At this stage, your client is either deliberately withholding payment or simply not prioritising your invoice — both of which are disrespectful and bad business practice. Making a short phone call to investigate will provide a more urgent reminder. Follow this with a second polite yet firmer email as record of the call. Ultimately, you’ve provided a service for which you’ve not been compensated and it’s important to find out why.
Contact persistently
Don’t waste your time. After multiple weeks of silence, your unpaid invoice should be treated as a serious priority. Send regular calls and letters over the next fortnight investigating your unpaid invoice while alerting your client to the possibility of legal action.
Introducing statutory interest on late payments can also increase client incentive.
With late payments responsible for over a fifth of corporate insolvencies in 2016, it becomes imperative your unpaid invoice is addressed.
Take professional action
If it becomes clear your client has neither the intention nor the means of paying, it’s time to take professional action. Collating and dating records each time your business has chased up your unpaid invoice will make your life easier during this uncomfortable time.
Ideally, aiming to solve your problem through a mediator or by sending a letter of statutory demand may save you some money and time, but frequently a stronger solution is required.
In these cases, court action or even a debt collection agency may be advisable, though remember these actions will permanently damage any future business relationship between yourself and your client.
Here are the 5 points again
- Don’t rush into extreme action — make sure you know the full picture first
- Always remain 100 per cent professional – despite your frustrations, you never know how far it might escalate in the long run
- Keep a record of everything
- Gradually persist more frequently — it’s not rude or inappropriate, you’ve provided a service for which you deserve payment
- Don’t be afraid to take the legal route when necessary
Hasib Howlader heads up a team of chartered accountants and tax advisers at Howlader & Co. Its clients range from startups to large established firms, as well as sole traders and contractors.
