Unpaid invoices are the bane of many business owner’s lives. You deserve to get paid for the work you’ve done, but what do you do if the customer doesn’t cough up the money when they’re supposed to. Here are some tips for dealing with unpaid invoices.
#1 – Resend their invoice
Sometimes a customer will genuinely forget to pay. While reminder emails are worth sending a couple days beforehand, these aren’t always enough to remind a customer to pay on time. Follow up this late payment by resending the invoice one day after with a late payment notice. This can gently prompt them to pay if they have accidentally forgotten about it. They also can’t use the excuse that they’ve mislaid the invoice, because you’ve resent it.
#2 – Chase them up
If a customer still doesn’t pay their invoice, you’ll need to find other ways of chasing them up. Consider making a phone call or sending them a letter in the mail if they haven’t made contact. It’s formality to wait at least seven days between each follow-up – you don’t want to chase them up too often as this could be deemed harassment. Avoid getting angry, and make a record of each attempt to chase them up.
#3 – Know when to get legal support
If you haven’t received the payment after 30 days, you can consider an LBA (letter before action). At this point, you can threaten taking legal action such as reclaiming goods or taking the case to court. It’s best to consult a legal advisor at this stage so that you know exactly what your rights are. Third-party services will be able to take over from here, saving you some of the stress. Just remember that you will have to pay for any legal services you use.
#4 – Look into invoice financing
If you need the invoices paid to cover bills, it’s worth noting that you can use services like invoice financing. This involves sending your invoice to a lender, who will pay you up to 90% of it there and then. You receive the rest of the money when the customer eventually pays their invoice. Be wary that there are extra fees for using this service. The benefit is that you do get paid something there and then so that you can maintain a healthy cash flow and budget ahead more effectively.
#5 – Introduce late payment penalties
You are legally entitled to charge late payment interest if a customer does not pay on time, however this should ideally be stated in a contract or invoice before the payment is due. This legally requires them to pay the extra interest. Late payment penalties can also be used as an incentive to encourage customers to stop delaying payments, as the late payment fees will go up the longer they don’t make a payment. Such fees can also be used to offset any legal fees or invoice financing fees that you may need to pay. On top of fees, consider introducing penalties such as withholding customer services if you are still providing them (such a halting construction of a building).