Tackling late payment of invoices: how to get what you’re owed

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When the COVID-19 crisis kicked off back in March, a lot of businesses put immediate restrictions on payments to build up a cash buffer. In my view, that knee-jerk reaction is bad news, not only for individual businesses but for the economy as a whole.

Some of my clients tell me they’ve struggled to get paid lately, even when the debtors don’t seem to be experiencing any particular difficulty.

You shouldn’t feel bad about wanting to get paid for work you’ve done or goods you’ve supplied. It’s not your sole responsibility to absorb this shock the whole economy is going through and you can’t operate like a charity.

Yes, a bit of reasonable flex can only be a good thing. Lots of people in business are trying to be patient at the moment and doing favours when you can does make sense – especially if the alternative is a client or supplier going bust.

If you run a marketing agency and you’re owed for a campaign on behalf of a hospitality business that had to padlock its doors on 23 March and hasn’t traded since, for example, you might be willing to cut them some slack.

By the same token, you might hope that your landlord will show some generosity when it comes to negotiating rent on an office your team hasn’t been able to use since about the same time.

It’s about being pragmatic and showing a bit of empathy, with longer-term relationships in mind.

I’d say smaller businesses, which tend to be a bit faster on their feet and more nimble anyway, are best equipped to deal with all this. You can get on the phone or a Zoom call and talk to someone and work out reasonable terms on an informal basis – peer to peer.

Realistically, bigger firms – as in, national or international businesses – are typically more blunt and less flexible.

Earlier this month, the Small Business Commissioner issued what can only be described as a proper telling-off to large businesses on this issue:

“This week I am writing to a number of individual businesses that are displaying the worst examples of payment practice by issuing standard communications to their entire supplier base advising that payments are going to be delayed or stopped. At this time of national crisis, every business is facing extraordinary pressure on cashflow. Although I understand the need to make commercial decisions in mitigation, I am concerned that this action will damage the supply chain, the economy and the reputation of their own business.”

There’s not much to disagree with there.

When the pressure starts building – when you really do need to see some money coming in the door – or if you start to suspect some of your debtors are taking advantage, what are your rights and what are your options?

Laying the groundwork

You can avoid a lot of trouble if your invoicing and payment processes are solid to begin with.

Never undertake work without agreeing payment terms and make sure those terms are clearly stated on your invoices.

Some organisations, especially large ones, may pressure you to agree to longer payment periods – sometimes as much as 90 days, or even 120.

For them, it’s effectively cheap credit, and some pre-COVID-19 statistics suggest that around £13 billion was owed to small businesses through overdue payments.

The Government has been trying to crackdown on this in recent years, aiming to reduce this to a 60-day maximum. To support this, it launched the prompt payment code and maintains a naughty list of firms suspended for breaching the terms of the code.

If you can, use cloud accounting software to track and chase invoices automatically. That not only makes it more efficient but also less personal.

Finally, make it as easy as possible for people to pay as it can. Include bank transfer information on your invoices and don’t give people excuses to delay paying – ‘I didn’t recognise the reference and wasn’t sure what it was for, so it’s missed this month’s payment run…’ State clearly what the product or service was and when it was delivered, in plain English.

And going right back to basics, when you draw up contracts, make sure they include clauses that specify what will happen if you’re not paid. For example, web hosting companies typically say they’ll switch off your website if you don’t pay on time.

Getting paid without getting heavy

The first thing to do with a debtor who won’t pay is to talk to them. Don’t email or issue a reminder – get on the phone or, now we’re all doing it, a video call.

Make clear to them that you expect to be paid, assertively and clearly. You’re no longer negotiating, you’re telling them what needs to happen.

Don’t get drawn into a debate – just repeat your request until they’ve accepted your point.

Don’t get emotional – you want to avoid giving them any excuse to terminate the conversation.

If they’re receiving an ongoing product or service from you on a subscription or contract basis, assuming you did as suggested above and put in non-payment clauses, you can also remind them of the consequences.

If this conversation reveals that they really aren’t in a position to pay, consider agreeing payment terms. It’s better to get paid a bit at a time by a client which is able to keep trading than never get paid at all because the client has gone bust.

Again, though, formalise this agreement, and get a signature on paper. If you’re being fobbed off, you need to be able to escalate.

Late payments: your rights

If being reasonable and negotiating hasn’t worked and your debtors are simply giving you the brush off, reminding them of your rights, and their obligations, often helps.

To put it simply, if they’re feeling stretched and prioritising who to pay, a little pressure can move your business closer to the front of the queue.

You can claim interest on a late payment, as long as clear terms were agreed upfront. If you didn’t agree to a payment date, however, it defaults to 30 days after either they receive the invoice or 30 days after you deliver the goods, if that’s later.

Fair’s fair

Ultimately, what’s important as we look down the barrel of a deep recession is that we all work together to keep money moving around the economy.

Things will return to normal and I’m determined to make sure my clients are still with me on the other side.

Contact us for advice on managing your cashflow.

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