Chasing late payers is an unwelcome distraction when you’re trying to focus on doing great work.
So it’s useful to understand how and where late payments occur, and how you can cut this management headache out of your business.
What exactly is a late payment?
All payments for business transactions must be made within 60 days unless otherwise agreed by both supplier and customer.
After this, a payment is deemed late, and you’re allowed to charge ‘statutory interest’ on it or claim debt recovery costs.
The 60 days will start either when the customer receives your invoice or the point at which the job ends (i.e. you’ve finished providing the goods/services) – whichever is later.
If you don’t agree a payment date, the law says the payment is late after 30 days, rather than 60 – comforting news if you’ve not yet chatted to your customers about payment terms.
Choose terms that work for everyone
It’s up to you which payment terms you opt for. But you need to think about what the customer will accept.
For example, if you’re selling physical goods, ‘Payment In Advance’ is widely accepted. If you’re a decorator providing both materials and services, shorter or upfront payment terms will again seem entirely reasonable.
But a consultant billing an hourly rate to their clients probably won’t expect payment in advance. Most freelancers providing services will use 30 days or ‘End Of Month’ terms, assuming their clients are happy with this.
You need to understand your customers’ payment habits
If your customers are other businesses, one good place to start is asking what their payment process involves. Do they process invoices monthly or on an ongoing basis? Is there a deadline for submitting them?
If your customers are consumers – i.e. members of the public – then how they pay for things is probably not much different from how you pay for things. Most will pay straight away, and if they don’t, a simple reminder via email or text will generally do the trick.
Commit to the chase
You’ll have to chase up payments from time to time – there’s no getting around it. The trick s to be firm but polite:
A friendly remember that your payment of £XX is due by November 1st.
In case you missed it, I’m just making you aware that your payment of £XX is due by November 1st.
Don’t wait until the deadline day to chase. It’s fine to chase a few days early, and most customers will appreciate this, as they don’t want to be labelled a late payer.
Making chasing easier
Rather than spending time manually chasing everything up, you can adopt technology to nudge your customers for you.
Our business management app can save you a world of hassle by automatically reminding customers when payments are overdue and alerting you to who has paid and who hasn’t.
This type of automation and record-keeping can also show you the average time it takes certain customers to pay, helping you manage your cash flow.
If you can get the payment basics right, using simple tools and techniques to ease the admin burden and automatically chase late payers, you’ll go to sleep each night with far fewer worries about the health of your business.