How to handle late paying customers

Ever since COVID-19 hit, late invoice payments in the UK have risen by 23%. As a result, companies must consider more effective ways to ensure they’re paid on time to thrive post-pandemic and so that they maintain good cash flow.

So how do you handle late paying customers? This article will be a guide on how to manage client relationships when you are waiting to be paid for your work by looking at the following areas:

• Use software to help keep track
• Be direct about your process
• Contact the customer correctly
• Be persistent
• Last resort options

First of all, take a look at how you are managing your payments. For example, you might track your invoices using an Excel sheet or still be using paper records. But there are many different software programs out there that can help you identify late payments.

A software could provide you with digital invoices so that your customers don’t have to wait for a paper one, or worse, forget about their paper invoice if they leave it lying around. Also, allowing customers to view invoices and pay digitally can be more convenient and could result in you being paid faster.

An effective invoicing software will remind you when certain payments are due and provide all the key information (such as amount owed, what services you provided and contact details) that you will need to chase the customer about what they owe. 

Customers have 30 days to pay an invoice in the UK unless you have agreed on other payment terms. A software could notify you on the 29th day if no payment has been received, and then again at regular intervals, so you never let a late payment fall through the cracks. A reminder process is simple for you to manage and gives the customer ample opportunity to pay you back.

Specific software, such as Countingup, will also automatically reconcile your invoices once they are paid so that you don’t have to spend hours doing bookkeeping as well as chasing your unpaid bills. 

Even small businesses should establish a process for chasing late payments. It’s good to have rules so that every customer is treated fairly, and you, as the owner, then have a simple process to follow to obtain your payment. 

Include your payment terms on every invoice. The statement of payment terms should clarify if the invoice must be paid within the standard 30 days or details of if you offer longer terms. But remember, the longer the time, the longer you might have to wait for the money, and your cash flow may suffer because of this.

If you so choose, then state that after 30 days, you will be charging the statutory 8% interest on any late payments, as it is your legal right to do so. Then send a new invoice with the updated amount if you are charging interest to the customer. 

Having documentation that has clear terms will help your case if the situation does escalate to getting the courts involved. By stating your terms clearly and creating a procedure you can follow for chasing invoices, it can also help you save time and stress.

Always try to speak to your late-paying customers over the phone. Of course, you can chase up via email, but you may get a quicker response by calling, and your tone of voice will not be misinterpreted. 

First, find out if there is a reason the customer hasn’t paid yet. There may be a reasonable explanation, and remaining friendly will preserve any trust and relationship you have built with the customer. Next, state the outstanding balance and try to agree on a date that the customer can pay it. 

Be courteous and professional in these discussions because being too aggressive straight away could damage the professional (or potentially personal) relationship. If there is a fair reason for their lateness, consider using an instalment payment plan so that you get your money and your customer can pay what they can afford over a longer period. 

If you would like more support in contacting customers, you can find email templates to use here. You can also read our other article on how to chase payments without seeming pushy.

Don’t give up on chasing the client for the payment. In recent research, 77% of business owners said they worry about damaging client relationships when chasing payment, and 76% think following up on outstanding invoices will hurt their chances of getting paid at all. 

Once you have chased the first time, send an email summarising what you discussed. Leave it a few days before chasing again on the phone, and again (if they answer or not) send an email pressing the matter and asking when they will be able to make payment. Be firm and cautious of more excuses. You can make exceptions for certain circumstances but be aware of when they might be trying to avoid paying at all. 

If you have waited longer than a month after the initial 30 days, try to arrange a meeting to agree on instalment payments or a settlement amount. If they are a regular customer, let them know that you will be withdrawing your services, which may prompt them to settle the invoice quickly. Do not keep working without being paid, as this could cause your business cash flow and severe financial problems.

As patient as you’ve been, sometimes the last resort is legal action. Consult a solicitor if the invoice is a sizable amount, and a legal professional should be able to help you submit a formal letter of claim to make your customer pay you back.

With the Countingup business current account and app, you can create invoices in seconds, get notifications when you’re paid, and receive automatic invoice matching so that you can save yourself hours of bookkeeping admin.  

The app automates a lot of the time consuming manual tasks associated with running a business. For example, it can help you create invoices in seconds, reconcile invoices once paid, automatically categorise your expenses and total up a tax estimate, so you’ll always know how much you owe HMRC.

Countingup is saving business owners hours of time-consuming work and helping thousands keep on top of their finances. Find out more here to save yourself hours of accounting and financial admin, and get back to what you do best – running your business.