As a small business, the problem of late invoice payment can be extremely detrimental to your cash flow. Knowing how to collect unpaid invoices from customers successfully and quickly will help to reduce the problem.
Here we have put together some simple strategies that you can use to reduce late payments, whilst still maintaining a good relationship with your client.
Set out payment terms upfront
One of the best ways to limit the late payment of commercial debts is for both parties to understand the expected payment terms. These should be set out upfront to avoid any potential issues arising. The majority of companies work on 30-day payment terms.
Late payment of commercial debts interest
Where customers still have unpaid invoices, there is government legislation that enables you to charge interest (up to 8% interest plus the Bank of England base rate), as well as recovering any third-party debt recovery costs.
Don’t take it personally
It can often be difficult to know how to collect unpaid invoices from customers in a professional manner. You need to remember that you’ve done the work for the client and not to take it personally when you have to chase a late invoice payment. Dealing with the situation in a polite manner and understanding that you’re within your rights to collect the debt will make the situation easier to handle.
Have an effective credit control system
Businesses that have an efficient credit control system in place are less likely to have a cash flow problem from unpaid invoices. This is due to fewer invoices getting to the late payment stage. Your credit control process should include initial late invoice payment letters and emails to remind customers about overdue invoices. A monthly statement of account for regular customers will also highlight any outstanding debts.
If neither of these approaches elicits payment from the client then a polite telephone call should be the next step. This is harder for a customer to ignore and could get to the bottom of the payment issue. It might be that they are having cash flow problems and can help you decide on what the most appropriate next step is.
Should I take a debtor to court?
Where a client continually fails to pay their unpaid invoices, it’s important to decide on how best to proceed. In some instances, this may be through the county court and high court system. When a company gets a County Court Judgement against them this can have a negative impact on their credit rating for six years. Often just the threat of this can be enough to get the debt paid.
Will using a debt collection agency be effective?
Employing professional and experienced debt collectors can take the stress and emotion out of collecting a late invoice payment from customers. They are highly skilled and understand the best approaches on how to collect unpaid invoices from customers. With a full-service debt collection company, such as CEA Limited, we can take your debt from initial letters through to court action and high court enforcement if necessary.
Set up a payment plan
Depending on the circumstances and the amount of the unpaid invoices, it could be beneficial to agree on a payment plan with your customer. If they’re suffering from a temporary cash flow problem, paying the invoice in installments gives them some breathing space whilst starting to pay off the debt. It’s also generally a more cost-effective and quicker solution than starting the court process.
How to collect unpaid invoices from customers
If your business is struggling with the late payment of commercial debts, the debt recovery team at CEA Limited is on hand to support you. For more information on how we can help with credit control and debt collection, contact us on 0113 532 8350 or email office@cealimited.co.uk.
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