Effectively managing your cash flow is paramount during these unsteady times. But unfortunately, late payments are a long-standing issue for small businesses and employed.
In the majority of cases, clear communication is all it takes to settle an invoice. Issuing late payment letters is a critical part of the debt recovery process, especially if the situation escalates later down the line.
I know too well how worrying it can be about coming across as pushy when chasing overdue invoices or missed payments. Which is why I’ve written this blog to give some tips on how to deal with it.
Track your invoices
Before all else, ensure you track your invoices diligently. If you don’t have a record of what’s owed to you, how are you going to chase it? Keep your system organised and streamlined so you can promptly chase payments when necessary. Many of the apps we use today, like Xero, have features to set up automated payment reminders.
Put a policy in place
Whether as part of a contract or letter of engagement, be clear from the offset about your late payment policy. Along with payment terms, detail the charges and fees incurred on late or missed payment.
The first step
Should the automated reminders be dismissed, the first step is to send a friendly reminder via email to your client outlining the payment overdue, and that they need to pay ASAP. Not only will a gentle reminder from you, personally, help in getting money moving, but it’ll also be a source of evidence should the situation progress.
Consistency is key
If the matter hasn’t been resolved, try a polite but firm approach on your next reminder. You could send a follow up email reiterating the terms of your contract. If you’re concerned, it might be useful to ask some questions such as the reason for non-payment, or maybe suggest a payment plan to help them settle the debt.
It’s always best to keep reminding the client of overdue invoices. Don’t shy away from picking up the phone, this is money owed to you.
Reiterate your policy
Still being ghosted? It’s time to be clear about the process your business will follow. Outline to your client the number/frequency of reminders that remains before you progress the matter further.
Avoid further debt
It sounds like a no brainer, but don’t continue providing your services or goods if payment isnt being received in line with your terms. Let your client know with a formal letter that you will be pausing your service until the existing balance is cleared.
Ok, so the above hasn’t sorted the problem. But before you take legal action, conducting a cost-benefit analysis can help you judge whether the outstanding balance justifies further action. For example, the cost of legal fees, and your own time.
It’s nearly time to progress. Sending a formal letter before taking action should make it clear to the client that if payment isn’t made, you have no choice but to pursue legal action. We advise you seek the appropriate legal advice before this step. There are many accredited bodies online which can help.
Unfortunately these situations are all too common, and can massively impact your small business or self employment. If you need assistance in drafting reminders, formal late payment letters, or wording your policy – YGF can help.