When you have carried out work or provided goods you should be able to collect the money your business is owed without issues.
Sadly, around 50,000 businesses close every year due to late payments, according to the Federation of Small Businesses. A lack of cash flow can ruin a business and if you are having problems, you’re not alone.
What should you do?
Some people decide to fight for the money but others often decide to give up after a while. Which is the best course of action? There are many factors and steps to this process.
For any business deal, the terms of payment should be agreed before the work is carried out. That way, should there be a conflict later on, the terms can be referred to and hopefully resolved.
Standard payment would be upon 30 days of sending out an invoice, but this varies. Some smaller, self-employed sole traders might require payment sooner. Some require 50 per cent before the work is carried out. It all depends on what deal you strike with the customer.
Whatever it is, it should be written down and recorded, so it’s there for all to see should any problems arise.
You might also want to include some terms and conditions about what will happen if payment isn’t made on time. This will add further weight to your dispute later down the line. Getting it signed is essential to avoid issues later.
How to collect money your business is owed
Don’t apologise about chasing for money. If you haven’t been paid, you have every right to ask why. Start by sending a gentle reminder; perhaps an admin error or a forgetful administrator is the reason you haven’t got the cash yet. But if your calm tone doesn’t work, don’t be afraid to pick up the phone and find out what’s going on.
A good way to prompt payment is to hold off on any new work. Write to the customer and explain you won’t be doing any more work until the invoice is paid. This is often referred to as a credit hold whereby work stops due to a lack of payment. In many cases this will often be enough for the customer and payment will swiftly follow.
If you still haven’t been paid, it’s time to issue a final notice. This highlights to the customer that if they don’t pay promptly, legal action will follow. If this still doesn’t bring forth payment, you have two options – you either go to small claims court or you enlist a debt collection agency.
Both ways take time and possibly money so should be avoided if you can. But if you are having no luck with the normal methods, there is absolutely nothing wrong with going down this route.
Don’t forget, if you’ve done the work, you deserve to be paid. And you shouldn’t apologise for that!
If you would like more advice about how to protect your business against late payments or improve cash flow, contact us today.