Late paying clients can be difficult to handle at the best of times. But the disruption to cashflow is particularly tough if your business is teetering on the edge of insolvency.
In these circumstances you need fast and effective action to get clients to pay up.
Invoice early and chase
Sound financial management is all about healthy cashflow. Unfortunately, you can’t always control when clients pay.
But there are some things that you do have control over. One thing you can control is when you send and chase up invoices.
To stop your own business sleepwalking to insolvency it helps if you invoice as soon as possible, or better yet, request some of the money for a job upfront.
Chasing up sent invoices is also important. If you set deadlines for payment of invoices then you should make sure that you send out reminders as soon as a deadline passes.
Set out terms and conditions
Another thing you have control over is the terms and conditions you set before starting work with a new client.
This is your chance to get agreement on what’s expected from yourself and the client. Getting this in writing also gives you an avenue to legal recourse if necessary.
Contract terms and conditions should include:
Late payment charges and early payment discounts
How do you make sure a client pays on time (or early)? Motivate them through their own bank balance.
While a quick reminder email might make your client feel guilty about not paying on time, it probably won’t be enough to make sure you are paid on time consistently.
Setting out a late payment fee before you carry out a project and then reinforcing it in invoices and reminder emails is more likely to get them to pay up.
If you want to introduce a carrot to your stick approach, you can also set out an early payment discount.
A few percentage points won’t hurt your income too much, but it will help you keep your cashflow healthy.
Stepping up action
It can be difficult to know what type of further action is appropriate, but if you are staring down the barrel of insolvency then then you may have no choice but to increase the pressure on your non-paying debtor.
When it’s time to make more decisive action, you have a number of options.
You can instruct a debt collection agency to collect on your behalf. This method can take a lot of the stress off your shoulders, but the agency will want a commission cut in return.
Alternatively you can ask a solicitor to send a legal letter, or send one yourself. Often, the threat of legal action can be enough to scare debtors into paying up.
For more information or advice please contact a member of the Umbrella Insolvency team on 0800 611 8888.