How Do You Chase An Unpaid Invoice?

When you are dealing with unpaid invoices and late payments, sometimes it feels like you are walking a tightrope. First of all, you must push your clients to make prompt payments. While at the same time, you have the urge to keep things friendly while preventing the relationship from breaking in order to continue doing business with them.

With regards to contracting, freelancing, or operating a small business, beginners and experts can agree to one thing, late payments can be a royal pain. Additionally, not getting paid at all is the worst part.

According to Yuno Juno, writer for Contractor Weekly, more than 50% of the UK’s freelancers were working for free due to some unpaid invoices. One in ten even says that there is nothing they can do in case their client pays late.

Silent Killer

Anil Stocker, who is the CEO and co-founder of MarketInvoice, said that late payment is considered as the silent killer of new businesses. His financial technology company, MarketInvoice, has spent five years in reviewing at least 30,000 invoices which are issued in more than 93 countries. Based on their research, there is actually a harmful practise of unpaid invoices and late payments.

MarketInvoice discovered that surprisingly, there were 62% of invoices in 2017 which have late payments. On average, Europe has 73%, the US has 71%, and finally, the UK has 66%. The report shows that invoices from UK firms were paid 18 days late on the average.

As a result, if these UK companies want to stay afloat and in the black, then they must allocate lots of time each week to pursue late-paying clients. Furthermore, this time could have been spent in promoting, marketing, and growing your business. Bear in mind that this precious time will never come back.

The problem is even getting worse in the public sector where nine out of ten suppliers revealed that they have been paid late, despite the government’s measures to encourage the public sector bodies to settle the invoices from SMEs within 30 days.

What Are The Effects Of Late Payment?

You might think that late payments are nothing but a minor inconvenience. However, most often, they can result in major consequences. For instance, it can create a negative effect on your cash flow and you will be unable to pay your suppliers and employees on time.

Furthermore, late payments can greatly affect your business. Based on the research from Siemens Financial Services published in Smallbusiness.co.uk, late payments could mean those small businesses will not be able to access up to £250 billion of cash which they are entitled to. In 2015, the Tungsten Network, which is a worldwide provider of invoice financing, e-invoicing, and the spend analytics, conduct a study on 1,000 senior decision-makers in SMEs. At least 23% of them confessed that late payments have placed their business at risk of closure. Furthermore, this closure could result in a number of job losses.

What Is A Credit Period?

The credit period starts either when the goods were delivered or when the work is finished, or when the client received a notice of payment due. Whichever is the latest of these will be applied.

Although, in some industries, it is common for clients to make a payment before the end of the month following the invoice month. This makes the credit period lasts up to 60 days.

When there is no agreement between both parties, then the Gov.uk website suggests that the client must pay your company within 30 days upon receiving your goods, services, or invoice. This means that the client has a credit period of 30 days.

What Reasons Are Given For Unpaid Invoices?

There are infinite excuses for unpaid invoices, however, most often, it boils down to one particular reason which is poor credit management.

Or perhaps it could be something that is entirely innocent such as your client may not have the purchase order number for you or you have made some mistakes on your invoice. Sometimes the reason is more calculated, for instance, you are having some disputes with the client with regards to the invoice. Sometimes they do this in order to avoid paying it.

There are also times that the client will dispute whether or not you have properly delivered your goods or services, then withheld payment respectively.

No matter what the reason is, late payments and most importantly non-payments can hit your pocket so hard.

How To Chase An Unpaid Invoice While Avoiding Chasing Your Client Away

Your payment deadline has passed and yet you have not heard anything from your client.

The first thing that you can do is to send a typical payment reminder email to your client. In case, you did not get any meaningful response from them then the next thing to do is to make a follow-up call to the accounts department. In case neither of these methods work then you might want to get more formal this time.

If the invoice remains unpaid, then you should write a letter or an email to your client and inform them that if they won’t pay their invoice within a specific number of days, then they will have to pay a charge of 8% statutory interest. In addition, they should also pay the base rate for the Bank of England intended for business-to-business transactions, which is equivalent to 0.75% in October 2018. Hence, the overall statutory interest payable for the client’s invoice would be 8.75%.

Traditionally, charging late payment interest is a smart way of dealing with the payment process. However, small companies are a bit hesitant to stake their claim. Based on the latest SME Risk Index from Zurich Insurance, Britain’s small-and-medium-sized businesses are owed about £44.6 billion in late payments and one in five of these companies are owed more than £25,000.

Prior research from Zurich revealed that at least 20% of them have tried to apply or have applied late payment interest on unpaid invoices. We hope that this information has helped you in feeling more confident about your rights most especially if you will be involved in this situation.

Using A Debt Collection Agency

Another method of handling unpaid invoices and late payments is by using a debt collection agency. Although these debt collection agents do not possess any special authorities, yet they will do all the tasks for you such as making phone calls, writing letters, etc. Also, reputable companies will not intimidate debtors.

Debt collection agency uses a “no collection, no fee” scheme. Typically, they will be charging between 5% and 15% of the amount that they’ve collected. But most likely, this will depend on the extent and complexity of the debt.

There are some situations wherein you could designate the unpaid invoice to an agency, as a result, they will become the legal owner of the debt.

Choosing a reputable debt collection company can ensure that your unpaid invoices will be handled in a delicate way. In this way, you can prevent the risk of losing your client forever.

Getting Solicitors Involved

In the event that your client refuses to pay, then you may be required to take things a step further.

Generally, a solicitors’ company who is an expert in debt recovery will charge you on an hourly basis or perhaps a percentage of the amount in the unpaid invoice which is usually 10%. However, most often the cost will greatly depend on the age, size, and complexity of the debt owed.

If you are wondering where you can find a solicitor that specialises in debt recovery services in your area then you can search them on Find a Solicitor. This is a free online service managed by the Law Society. Make sure that the solicitor is governed by the Solicitors Regulation Authority.

Whether you want to use a debt collection service or a solicitor, you have the right to charge your client with a fixed amount for the cost of recovering a late payment. Take note that this is in addition to the claiming statutory interest. The amount will depend on the size of the debt.

Money Claim Online

Using Money Claim Online service can help you in saving some money from paying solicitors and debt collection agencies. Additionally, you can still use this to recover your costs.

If you are a limited company or a sole trader owed a total amount of less than £100,000, then all you have to do is register for a UK Government Gateway account. Afterwards, you have to fill up the small claims court form which will take about an hour or so.

So, how does it work? The court will send a letter to your client asking for payment. In case, your client doesn’t cough up within a specific period of time which others usually don’t, then the court will file a County Court Judgment (CCJ) against your client. This can result in a big black mark on your client’s credit score for the succeeding six years. Nevertheless, you have to keep in mind that a CCJ will not ensure you of any payment. Hence, if you really want to recover the debt, then you can still take further action.

If you are thinking of using this option then it’s just like you are pouring cold water on your business relationship, hence, you should not expect that you will have any work coming from them.

How Can You Prevent Late Payment?

If you really want to prevent any unpaid invoices and late payments then you have to be passionate about credit control.

Here, we will give you six simple steps to help you in preventing any late payments and unpaid invoices.

1. Be sure to run a credit check on your would-be client before adding them to your group of clients,
2. In your Terms and Conditions of Business, be sure to state clearly the payment terms including the due date for the payment, overdue, and others.
3. Before you start doing the work, always request an up-front payment or a deposit, most especially for bigger projects.
4. Once you are done with the work, be sure to send an invoice right away. You can also send some information about statutory late payment interest. For late-paying clients, you need to apply these charges.
5. Before the due date of the invoice arrives, you need to send payment reminders to your clients.
6. Be friendly to the staff handling your client’s invoices. Obtaining an excellent working relationship with them can be helpful when chasing payments.

It is also important to reflect whether these late-paying clients are valuable to you. You need to realise that these clients are not considered as assets but rather liabilities. Perhaps your late-paying clients wouldn’t mind if you take no prisoners when it comes to credit control. They will acknowledge that. If you are professional with your business dealings, then most probably you are also professional with theirs.