It is a well-known fact that SMEs in the UK continue to struggle with late payments, with businesses chasing a staggering £50 billion in overdue invoices.
Every business will come across customers who are happy to receive goods and/or services but a little more reluctant to part with their money when the invoice arrives. So, what can you do to minimise the risk of late payments?
We’ve put together some helpful guidance on what practices you can put in place to reduce the risk of late payments.
Get it in writing
Although a contract doesn’t need to be in writing for it to be legally binding, we would advise that any agreement between you and your customer is in writing. Oral contracts are much harder to enforce so having documentary evidence showing what was agreed is best practice. This ensures that both parties are aware of the terms and should a dispute arise, you have written evidence of what was agreed.
It may sound obvious but get the contract agreed in writing. Ideally, in the form of a signature on the contract or alternatively, get your customer to send an email or letter confirming they are happy with your terms.
With product based businesses, this is much easier as you can simply state which products you are supplying and how much they cost. If you are a service based business, this can be more complex. Your contract should clearly state the exact scope of works you have agreed to do for the fee quoted and also state that it does not include any additional work that goes beyond the scope of the original contract. Should your customer want you to do additional works, that aren’t include in the contract, make sure you update the agreement and agree the additional charges before you start the work.
Set payment terms
It is important that you include clear payment terms within your contract so your customer knows exactly what to expect. This should include things like:
- When you will issue your invoices
- How long your customer has to pay you, once they receive the invoice
- How much interest will be added for late payments
It is also worth adding a clause into your contract that states you will not continue any further work/supply of goods until outstanding invoices are settled.
Send your invoice
As soon as you have completed the contracted work or delivered the goods, send your invoice immediately. As with the contract, include an itemised list of your scope of works or goods supplied, along with a total figure.
Ideally, get the contact details for the person who processes the invoices, rather than your specific contact. This can reduce the risk of your invoice not being forwarded to the accounts department which can lead to non-payment.
Follow up the invoice
It is good practice to follow up with your customer after you have sent the invoice, to double check they have received it. The best way to do this is via email so you have a paper trail of them acknowledging receipt of the invoice, should problems occur closer to the payment date.
It is also worth adding the due date to your diary as a reminder to chase payment, should your customer fail to pay you on time.
If you haven’t received payment by the day after the due date, be sure to chase your customer. Some businesses think that doing this will damage their relationship with their customer but there could be a legitimate reason for non-payment.
If you continue to have issues with non-payment, do not delaying in escalating the matter through the legal channel. This may be daunting but businesses like ours do this on a daily basis so we can support you through the process.