How Do You Chase An Unpaid Invoice?

Every business under the sun has to take payments. It’s how the whole model works. Some, like retail businesses, will take payment for goods and services at the point of exchange, or even in advance, in the case of online shopping. For this model, there is very little risk of late payment, since if the customer doesn’t pay, they don’t receive the goods. But for service-based businesses, it’s a little different. Invoices are raised and sent on delivery, and without a customer there in front of you it’s very difficult to ensure instant payment. Instead, you’re at the whim of finance departments, and depending on the financial health of your client, you may end up with late payments or unpaid invoices. So, what do you do now? You chase them of course – and here’s how to do it without ruining any relationships.

Check the Credit Period

Before you jump right to chasing down accounts departments, it’s with checking what your credit period is, and how far out of it your client is. A credit period begins either on the day the work is completed / the goods delivered, or when the customer receives notice of payment due – whichever comes last. The credit period will vary a little from business to business, but more dramatically from industry to industry. In some industries, it’s the norm for customers to pay before the end of the month which follow the invoice month – which means you have a credit period of up to 60 days. In others, payment on delivery is expected, and in others within 30 days of the invoice. If you have no agreement in place, then the UK default credit period (as defined by the government) is 30 days.

Find Out The Reason

As we’ve said before, there is an almost bottomless pit of excuses on hand for unpaid invoices. But more often than not the real root of the issue is poor credit management from your client. Remember though, it could something completely innocent – like the client not having a purchase order number or you invoicing the wrong person or even the wrong business (unlikely, but it has happened many times!). Or it could be a more calculated move on your client’s part – like disputing an invoice just to avoid paying it. But again in this situation, a client could be genuinely disputing whether or not your service has been delivered, and is only withholding payment until the problem is resolved, or they are disputing simply to defer or avoid payment entirely. Until you speak to them, you won’t know. But whatever the reason, unpaid invoices still hit your pocket hard.

Steps To Take

So, how do you chase the invoice, without chasing away the client?

• First things first, send them a friendly and casual reminder that their payment is overdue. No accusations or threats, just a nice, calm reminder. After all – they could have genuinely forgotten!
• If you don’t get any joy from the email (in terms of a meaningful response), then follow it up with a phone call. It’s much harder to avoid an uncomfortable question when you’re on the phone!
• If this still doesn’t get any response, you need to go a bit more formal, starting with a payment reminder letter. This should state that if your invoice isn’t paid within a certain number of days, you will be charging them the statutory interest rate of 8%, plus the Bank of England base rate for business to business transactions (which in 2020 is 0.5%), so a total of 8.5% interest on their invoice.
• If this fails, then it may be time to bring in a professional debt collection agency to pursue the matter further.

It’s worth mentioning here that, while conventional wisdom (and indeed evidence) suggests that charging late payment interest can help move the payment process along, many small and medium sized businesses are often reluctant to actually follow through with it. Only around 20% of the business owners owed money will apply or try to apply late payment fees to unpaid invoices, worrying that it will result in further non-payment, or that they will lose a client. But the opposite is true, and if you prove that you will follow through and that paying late will cost your clients more, they are actually much more likely to pay on time in the future.

At Debtcol, we specialise in helping business owners like you claim the money you’re owed by clients, and manage your relationships while doing it. Unpaid invoices don’t have to mean you lose a client, and equally running a business doesn’t have to mean you have unpaid invoices. We work closely with you to put processes in place to reduce late payments, and we handle the collections process if any go past due. To find out more, just get in touch with the team today.