How to Set Yourself Up and Deal with Late Payments as a Business

Small businesses are incredibly important to the UK economy. They create jobs, they innovate, and they make up 99% of all businesses.

But what happens when a small business gets hit with a late payment? What's the best way to deal with this challenge?

In this blog, we're going to take a look at some ways that small businesses can deal with late payments from customers!

When It Comes to Late Payments, Set Yourself Up From The Start

Develop a Policy for Late Payments and be Consistent

A late payment policy is a crucial part of your business's financial strategy. It's a clear statement about how you expect to be treated and it will protect you from getting caught in a bad situation.

Make sure your clients understand what constitutes a late payment and what will happen if they don't pay on time. Don't make exceptions unless it's an extreme situation. If you're giving them extra time or letting them slide once in a while because they're friends or family members, then you're setting yourself up for trouble down the road when things get tough financially for them, and everyone else in the economy.

Make sure your invoices are clear and easy to understand. Include all relevant information on your invoices so that there's no confusion about what needs to be paid and when it needs to be paid by. If you're using accounting or financial software of any kind, make sure that your invoices can pull in data from other areas of your software so that everything is accurate without having to do any manual entry work yourself.

Above all ensure you’ve got your Late Payment Policy and Terms and Conditions documented and these are communicated with your customers, for us they are on our proposal as well as our invoices.

In-Full, In-Stages or Offer a Discount for Early Payment.

If you have the option of offering a discount for early payment, this can be an excellent incentive for your customers. Not only will their payment arrive sooner, but they'll also feel like they're saving money. This could be enough to keep them from delaying payment in the future.

Another option is asking for payment upfront or in stages. For example, if you're selling services, ask for half the money up front and the rest on completion. If you're selling goods, ask for payment upfront in full.

Send Invoices Out and Follow-Up As Quickly as Possible

Invoice as soon as the work is completed so that there's no delay between when your client received the work and when they pay for it. If your client hasn't paid you by the deadline stated on your invoice, it's important to follow up as quickly as possible, ask them whether there are any issues with payment or whether they would like any additional information about the invoice before sending payment. If they haven't responded after a week or two, give them a call or send them an email. Be persistent and polite.

If they still don't respond, then start your late payment process and get legal advice (covered later), do not leave it!

Charge Interest on Overdue Accounts

Make sure your policy / T&Cs cover all aspects of charging interest, such as when the interest starts accruing and how much interest you can charge. You can also include language that says the customer's agreement with you allows for charging interest if they fail to pay on time. Clarify your terms legally to ensure you’re within the law.

Takeaway:

It's important to remember that there are many good clients out there who will respect your work and pay on time every time. Establish clear payment terms with each of your clients and stand by them. If a client won't agree to your terms, don't take the job!

Dealing with Late Payments

It's Time To Get Legal Advice

First and foremost, do not leave it or try and handle it yourself.

If you are experiencing a late payment, your first step should be to follow the process that you have in place for dealing with this issue. This will ensure that you can get the best outcome possible for your business.

It is also important to remember that there may be some factors beyond your control when dealing with a late payment. For example, if your client has recently experienced an act of God in their area, then there are likely other issues that they are facing that need to be resolved before they can pay their invoice on time. Gather the facts, Keep calm, manage your emotions and you'll manage your business.

In the unfortunate event that you’re just not getting anywhere, then the next step is engaging in legal advice. And yes, I have been down this route, and believe me it takes the stress and anxiety away, as I said earlier, do not try and deal with it yourself.

The first thing I would advise is to find an experienced solicitor who can help you with your claim. They will be able to advise you on what your options are and guide you through each stage of the process so that there are no surprises along the way.

Two brilliant sources of info on this are the FSB and the Small Business Commission

As a member with FSB you get support with Legal Advice here’s the link to their page on late payments - https://www.fsb.org.uk/resources-page/dealing-with-late-payments.html

There is also the Small Business Commissioner – they consider complaints from small businesses (that is businesses with fewer than 50 staff) about payment problems they have with their larger business customers (with 50 or more employees).

Their website is: https://www.smallbusinesscommissioner.gov.uk/