Late payments are one of the biggest causes of cashflow issues for small businesses. If you need to chase payments for your invoices, or for those of your clients', you need to strike a balance between being firm and maintaining amicable relations.

It is important for any business to keep track of its invoices to clients and make sure they are paid on time. Cashflow will be seriously affected if your clients are not sticking to the agreed payment terms and this will have a knock on effect for your business and any suppliers you are subsequently unable to pay. It is vital that you agree payment terms before undertaking any work - get a formal letter of engagement written and signed. 

Although 94% of ICB practices have no trouble getting paid on time* there will occasionally be a client who needs gentle reminders that an invoice is outstanding.  You may even provide credit control to your clients as a paid service and find yourself chasing their debtors.

Credit Control Steps by Step:

You should take care to maintain your professionalism at all times; nobody wishes to be intimidated or insulted and it should not be necessary if you consider these simple pointers:

Initial contact:

It is unusual for any business to pay early.  Bear this in mind when you are setting payment terms on your invoices and do not worry unduly if an invoice is not paid before the due date.

Usually a telephone call two or three days after the due date will have the desired effect. Simply check that everything is okay, and remind them of the invoice.

Try to get a date for payment, e.g. ask "so can I expect to receive payment by the end of the week?" This makes it easier for you to ring after that date and chase again.  Clients sometimes take one or two days to write a cheque, others may take a week. If they have planned to send the payment next time they are at the bank, i.e. Friday, and you ring on Thursday chasing them again, this can put them off.

Follow up:

If payment has still not been received, follow up with another phone call two to three days after the rescheduled payment date. Be firm but remember that your priority should be to maintain good relations with your client.

Usually if the second telephone call does not result in payment, you should send a statement of accounts by letter. This letter should list the invoices that are still outstanding, their due dates and total outstanding amount. This letter should also state that if payment is not received by a certain date (usually 14 days from date of letter) then services will be witheld.

Seeking legal advice:

If after the 14 days (or whatever you choose) there is still no payment, or the client has not contacted you to arrange a payment date, you should take legal advice. Members can use ICB's free legal advice line to help with the next stages. Your options are usually a Small Claims Court to chase the outstanding debt, but the ICB's legal team can talk you through this should you be in this situation.

Use technology to your advantage:

You should try encouraging your clients to pay you electronically by bank transfer.  Alternatively there are smart phone and tablet add-ons that enable you to take card payments, though you should be aware that they will charge transaction fees and may even have monthly costs.  Some online invoicing software allows you to take card payments directly from an invoice but again, there will be transaction fees to pay.

A final thought:

Always remain calm when talking to clients about outstanding invoices. They will usually feel pressured and a calm conversation will help you, and them, sort the matter out quickly. If things start to get nasty between you and the client, this usually provokes unnecessary excuses and accusations from the client.

If a client has never paid you on time and you always have to resort to calling them up to chase, you may be better off walking away.

The above notes are only general guidance. For example if you have been working with a client for 3 years and they have always been a good payer, then you should give them some flexibility. If you know that your client is going through a tough time then take this in to account, but if you start to get unhappy about the amount outstanding, then do not let it get worse. Talk to your client about the situation, try to come to an arrangement on payments.

ICB is here to help you if you find yourself in this situation. Please contact us for advice.

* 94% of members who answered the 2012 Members Survey agreed that they have no trouble getting paid on time.

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