How to protect your business from late payers
Posted on 9th August 2023 at 15:12
As a business owner, you undoubtedly pour your heart and soul into your your work striving for growth, success, and building a strong reputation. You will no doubt put your clients needs before your own and strive hard to give good custmer service. But despite this, you may still find that some customers are late payers. The occasional late payment might not seem like a big deal but when you have consistent late payers it can have quite an impact on your business and your time. In this blog, we'll explore the potential consequences of late payments and provide you with some solutions to help you protect your business from late payers.
The Consequences of Late Payments
Late payments can set off a domino effect that impacts every aspect of your small business, from day-to-day operations to future growth prospects. Here are some of the consequences you might face:
Late payments disrupt your cash flow, making it challenging to meet immediate expenses like payroll, bills, and inventory restocking. This can lead to financial stress and even hinder your ability to take advantage of growth opportunities.
Consistently receiving late payments strain the client-business relationship, eroding trust and making the relationship with the client uncomfortable which is likely to affect you working together in the future.
Time spent chasing late payments is time that could be better spent on serving existing clients or seeking new business opportunities. Late payments can distract you from your core operations and long-term business strategy.
Preventing Late Payments - Your Defense Strategy
Chasing payments can feel uncomfortable, but not as uncomfortable as facing a cash flow crisis or being unable to pay your suppliers. Fortunately, there are ways to protect your small business from the pitfalls of late payments, it simply requires a proactive approach. Here's a simples strategy you can implement:
Clear Payment Terms
Set clear and concise payment terms at the outset of your business relationship. Outline due dates, accepted payment methods, and any late payment penalties. Make sure your clients understand and agree to these terms before engaging in any work.
Issue detailed invoices promptly upon completion or delivery of work. Where possible, invoice in advance of supply or delivery. Clearly state the payment due date, payment instructions, and a breakdown of charges. A well-structured invoice is appreciated, reduces confusion and increases the chances of receiving prompt payment.
Chasing money is not comfortable, but if you use a CRM such as Xero, you can set up automated reminders which takes the pressure off you as the business owner.
Make taking payments easy
Consider adding a payment link to your invoices to make it easy for your clients to pay you. If you have regular payments from clients set up a direct debit so that payments are taken automatically.
Sending friendly payment reminders a few days before the due date and shortly after the due date has passed is perfectly acceptable and good practice. Often, clients simply overlook the payment deadline because they are busy too, so a gentle reminder is appreciated.
Late Payment Penalties
Consider implementing late payment penalties as part of your payment terms. These penalties should be reasonable and in line with the law. You must communicate these penalties to your clients
If a payment becomes overdue, don't hesitate to follow up with your client. Keeping the lines of communication open is vital, especially if the client is facing financial challenges. Sometimes, a simple and friendly conversation can lead to a resolution.
No one wants to go down the road of late penalty fees, so if you discover your client has cash flow issues consider offering a payment plan to clear the debt.
Recourse and Remedies
While prevention is key, there are legal avenues available if a client consistently ignores payment requests.
Late Payment Interest
UK law allows you to charge interest on late payments at a statutory rate, make sure you include this interest provision in your payment terms.
If all else fails, you can consider engaging a debt recovery service. These services specialise in collecting overdue payments and can be particularly effective for more challenging cases.
While legal action is always a last resort, often a simple "letter before action" is all that is needed to elicit payment.
If legal action does become necessary, you can pursue a County Court Judgment (CCJ) against the client, which could potentially lead to the seizure of assets or other enforcement measures.
As you can see, protecting your small business from late payments requires a combination of proactive measures and a solid understanding of your rights under the law. By setting clear payment terms, issuing detailed invoices, and maintaining open communication with your clients, you can reduce the risk of late payments and ensure a smoother cash flow. Remember, while prevention is ideal, you have legal options at your disposal should you need to enforce payment.
Don't let your business suffer by not addressing the issue of payments, no matter how uncomfortable it might feel. Stay informed, stay proactive, and watch your business grow.
If you need any help with late payments or setting up systems for invoicing, please contact us here
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