Posted - 03/03/11 | 0 Comments

Toning up your processes – Part 3: Chase up overdue invoices without offending your customer

So we have exclusively revealed to gasps of surprise that the big boys don’t always pay on time. In the second of this series of posts we looked at how you could structure your invoices to make them “process friendly” so that they get approved and paid faster. But what happens when you do everything right and your invoice is still not being paid? In the final blog in this series I look at a series of tips and tricks to navigate the tricky route of getting overdue invoices paid without offending your customer:

1. You will be helped immeasurably at this stage by things you have done earlier in the process. The first of these is to ensure your customer has at least seen and preferably signed a set of your terms and conditions. This should state clearly what you are going to do for them, what you are going to charge them and it should also be clear about when your invoice should be paid. Also reserve the right to charge interest on overdue invoices (see more on this below).

2. In your terms and conditions, retain title in your goods and services until you are paid. This means that you continue to own whatever it is you have sold your customer until they pay for it. If it is a physical product you are giving yourself the fall back that you can always go and ask for it back. If it is a service such as design or development work, title is less simple but you can ensure that the customer can’t use whatever it is you have created without your permission until it is paid for. I heard a story about an architect who designed an office block and the plans went to the local authority as part of a planning application. The client was very slow paying. Eventually the architect wrote and said that the plans were still his and unless payment was forthcoming he would withdraw them from the planning application ensuring certain failure. He received payment within 24 hours.

3. Be clear on your invoice about your terms. Don’t use old fashioned terms like “30 days nett”. An unambiguous statement like “Please pay within 30 days from receipt of invoice” is all that is needed.

4. Don’t be too generous. Why do we all give companies 30 days to pay? Most companies have the ability to turn payment round in 7 or 14 days.

5. If payment becomes overdue, chase the customer straight away – the day it becomes overdue. A polite letter or email stating that the invoice is past due and you would appreciate payment by return. No need to be threatening at this stage.

6. Give it until the invoice is 14 days overdue and then you should change tone. Write to your customers and label the letter “Final Reminder”. State politely that despite a previous reminder you have still not received payment. Be clear what course of action you will take if you do not receive payment within 7 days. Here are some options:

a. You could charge interest from the due date until you are paid. You have a statutory right to do this and your customer cannot do anything to contract out of this obligation. Under this legislation you are legally entitled to charge interest on overdue invoices at 8% over the Bank of England Base Rate on the previous 31 December of 30 June whichever is the most recent.

b. You could request that the customer stops using whatever it is you have created for them.

c. If you offer a service you could warn that you will discontinue it.

d. You could warn that you will escalate the problem within the customer organisation.

e. You could warn that you will pass the invoiced to a third party for collection.

Which of these you choose will be a matter for your judgement and based on your relationship with the customer.

7. It is rare that after all this your customer will withhold payment unless there is a real problem.  If they do you should seek help. You could either pass this to a third party to chase for you. This does seem to be a very effective route. In the customer’s mind there is a step change in seriousness when they realise that you have engaged a professional to help.

In extremis you could take your claim to the small claims court. However think carefully before doing this because you will certainly incur fees that might end up being larger than the invoice amount you are trying to collect. It is only in exceptional circumstances that things get this serious – especially if you have followed all of the steps above.

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