An astonishing percentage of SMEs in the UK recently reported that collecting payment from customers is one of the main hindrances in their business success. Over £2.4 billion is written-off by small businesses each year in the UK alone.
Types of late-payment customers
While the occasional late payment can be expected, missing payments or multiple overdue payments can cause serious problems with cashflow for a freelancer or small business.
Then there’s the hassle of endless emails and phone calls to follow-up. In some cases, a simple reminder is enough to get your customer to pay. After all, some customers might be completely willing and able to pay for your goods or service but have simply forgotten.
Then there are those who are willing but not able to pay. This type of customer might prove a little more difficult to get in touch with - they could be stressed about their financial situation or working on collecting the funds.
Customers who are unwilling to pay for any given reason are arguably the most difficult to get ahold of, not to mention receive payment from in the end. Most commonly, payments from this type of customer are the ones that may require more drastic measures for payment collection.
Should you chase or write-off?
When it looks like the payment isn’t going to come through without some major hard work (and possibly some seriously uncomfortable conversations) from your end, it might be worth considering writing-off the amount.
Typically, this is only suggested for smaller amounts (typically under £100 or so), as your budget should have a certain allowance for bad debt built in.
Because your time truly is money in an SME, time spent chasing an amount under £100 could be better spent looking for new (and potentially more profitable) business opportunities.
Pursuing payment without burning bridges
Sometimes, even loyal customers might suddenly go radio silent about an overdue payment. As a sole trader or SME, your relationships with your customers are an important part of your business.
Pursuing payment from a regular customer without destroying the business relationship and jeopardising the potential for future business might be a primary concern.
In this type of situation, as with many, communication is key. Instead of becoming agitated and demanding payment, it could be more effective to try an approach that aims at being understanding while still asserting that the payment must be received.
It could be that the customer needs a bit more time before they are able to pay. Discuss the options with them and work out something that will work for you both. Hold them to the solution you agree upon.
Taking it higher
When emails, phone calls, and reminder letters (with or without a late fee for payments not made after 30 days) have not gotten your business closer to receiving payment from a customer, it may be time to take things up a notch.
There are, however, a few options you have before taking the customer to court.
A first step could be to involve a debt collection agency. These firms take care of any legal proceedings (if necessary) and will only charge if they are successful in obtaining the payment owed to you.
Another step is to contact your solicitor. Often, a letter from a solicitor can be quite persuasive in encouraging a customer to pay up. The solicitor will outline the late fees, interest rate, and will give them a set period of time in which to pay in full, or legal avenues will be pursued.
What to remember
Late payments are a big problem. Running a business is already a massive task, so it is important to be firm about your payment expectations and pursue the necessary steps for payment should your customer fail to respond.
But it’s also crucial to retain professionalism and remember that this is a business relationship.
Overdue payments and Debitoor
In Debitoor, you can create and send reminders on invoices that are overdue. There are templates available for a friendly, first, second, and third reminder as well as the option to include a late fee.