Keeping up with unpaid invoices can be challenging for small business owners. So, here is what you can do to keep things pleasant with your clients and at the same time get your owed money back.
As a small business owner, you might face a lot of hardship while chasing the late payments from your clients and you might at times think you won’t be giving out services on account anymore. But the truth is, these late payments and unpaid invoices are inevitable part of any business. So you just need to be more tactical and patient in order to get paid what you owe while keeping a cordial relationship with your clients.
How Late Payments Affect Small Businesses:
A global report of 2018 showed that 43% of small and medium businesses experienced late payments which is estimated to be £13 billion in total. In the UK, SMEs face a debt burden of £23.4 billion and an average of 66% late payments. Of those small and medium businesses impacted by delayed payments, 63% face negative effects on their businesses. More than 35% are forced to rely on bank overdrafts and almost a quarter of them have to hold off paying their own suppliers being forced by outstanding payments.
The Duration of Your Outstanding Payment:
The duration for your clients to pay back your due is determined by the credit period. Some companies set a rule for clients to pay within 60 days followed by an invoice. According to the UK government it's mandatory to pay back within credit periods of 30 days. Accountants in London suggest that you be wise to get the payment as soon as possible to keep your cash flow consistent and to pay out your own debts on time.
How to Deal With an Unpaid Invoice:
With a lot of experience and a view to help the reader, Taj Accountants has come up with the right solution for you. The following are what you can do in order to deal with prompt payers and outstanding payment.
Send an email: Insitally you can send a gentle reminder through emailing your client when you see the credit period has passed and your payment is still hanging. You can also follow up with a call while making sure you are not rude or aggressive. Sometimes a call is all it takes to ensure payment.
Send a formal reminder: If your previous reminder does not turn out to be fruitful then it's time you send a formal reminder straight away. In your letter you can mention about getting them charged for interest which will make them reconsider and paypack due as soon as possible. According to the Bank of England base rate, you can charge them or 8.75% payable interest on the invoice.
Reach out to an agency: When none of your formal or casual reminders works out for you and you are tired, then you now need to use a debt collection agency. Your local small business accountants can get the task done for you. They can keep on going with your unpaid invoices and will make sure to get your work done. They’d charge 5% and 15% of the amount collected for the service but they wouldn’t charge a penny if your work debt is not collected. They’d handle your task with care and make sure you still have a good relationship with your client.
Hire a solicitor: Once you are confirmed that you do have a debt problem and have done all you can for chasing the payment yourself but in vain, when a client deliberately refuses to pay, you may need to hire a solicitor. They potentially charge around 10% or with an hourly rate depending on the complexity of the unpaid invoice. You can contact a solicitor online or offline in your area and it could take up to 30 weeks to receive a Court hearing date. It's worth the charge and patience because getting something out of it is better than getting nothing.
Claim Money Online: Anything done online can save you a chunk of money anytime. You claim your money online and save up on the solicitors and debt collection agency fees. To do this you need to register for a UK Government Gateway account and complete the ‘small claims court form’. After you’re registered at UK Government Gateway, your client will receive a letter from court prompting payment and if they miss out on payments this time then the court will register a County Court Judgment (CCJ) against and that will affect their credit score for the next six years. This move however will spread bitterness between you and your client and you may need to take a lot of further actions in terms of recovering your debts.
How can you minimising late payments:
As it goes, prevention is better than cure. In case of late payments and unpaid invoices it is definitely better to take preventive measures before going for any legal actions, it will not only save your relationship with your clients but also help you save you from monetary charges. So, here’s what Taj Accountants suggests you to do:
• Make sure to set your credit terms and conditions before giving out services on account
• Set a rate for charging as late fees for the invoice that falls due
• Clarify your terms and conditions with your clients and let them know about the penalties
• Make sure to set reminders on time and maintain a contact calendar for invoices
• Have an easy system for customers to pay your invoices
• Run a credit check before taking any legal actions
• Request payment up-front or a deposit especially for larger contracts
• Credit check potential customers to see their payment behaviour
• Try to maintain a good relationship with your clients
Above all, you need to be patient and understandable towards your clients. At times you need to understand they might be busy or going through financial trouble so give them a reminder and understand their situations. Talk to them about their situation before making any rush decision. Every client is valuable for your business’s financial states and reputation so you need to maintain a good relationship with them. For any kind of assistance regarding the mentioned issues, contact Taj Accountants and get your desired solution for your monetary problems.
DISCLAIMER: The purpose of the blog is to provide information and insight regarding the situation. The readers must contact experts before making any decisions based on the information. We highly appreciate you to contact Taj Accountants for further assistance.