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Debt Recovery: How To Deal With Unpaid Or Overdue Invoices

Running your own business can be stressful enough without having to worry about outstanding invoices. Unfortunately, however, unpaid or overdue invoices are part of business life. So how do you go about dealing with them in a stress free and effective manner?

The first thing you need to do is work out what type of customer or client you are dealing with. Generally there are five different types of late payers. Once you know which group the offending company falls into, you will be better equipped to deal with the problem.

Frequent late payers

Nearly every business has at least one chronic late payer. This is the type of client or customer who always pays in the end, but never when you need them to. While it can be easy to fall into a certain rhythm with such customers, they can be a huge drain on cash flow – especially at periods when expenditure is high.

Set specific deadlines and make them obvious both in your terms and conditions and on each and every invoice you send out. Keep tabs on who’s paid and who hasn’t and be sure to call or email them as soon as the deadline that you have set has passed. Once you have made contact, set reminders to call regularly until payment is made and be persistent.

No one likes to be chased for money, and you’ll generally find that after a couple of months of adopting this new approach the majority of late payers will choose to pay your invoices promptly in future.

The forgetful type

Despite the digital automation in most offices these days you will still come across clients who claim to have forgotten or misplaced your payment details. Thankfully, this one is simple to fix, but many businesses don’t take the pre-emptive action necessary to head off such convenient absent-mindedness.

There are two ways to tackle this problem. The first is to include your bank details on every invoice. This is the simplest and most effective thing you can do to overcome the issue of payment details being forgotten, as there are then no excuses left for them to hide behind.

The other is to set up online payments so they do not need your details at all. If you invoice digitally, you can even include a link to the payment portal in your invoice.

The immediate cash flow client

Sometimes a late payment can simply be due to circumstances. All businesses go through good and bad times, so it could just be the case that your late payer is having one or two cash flow problems at present. The key is to find out whether this is the case or not.

By making contact with the client early you will be able to assess the situation and get a handle on when they intend to pay. If it’s a client that usually pays on time and has been with you for a number of years, don’t worry too much. Tell them that you understand their predicament and that you’ll give them extra time to pay as a gesture of goodwill. However, do make sure that they keep you informed of any future changes to their situation.

Longer-term payment problems

While the client with short term cash flow issues can be dealt with quite easily, those with long term problems can be a little more challenging. Say, for instance, you are dealing with a company that has lost a big client themselves, leaving them scrabbling for cash to pay bills and you are low down on the list of priorities. What do you do then?

Setting up a payment plan is really your only option here, as demanding payment in full is likely to fall on deaf ears. Having some money coming in is far better than no money at all, and yet setting up a payment plan still shows a certain degree of goodwill to the client.

The zero contact client

Having a client drop off the face of the earth is worrying to say the least. No matter what form of communication you try, you can’t get hold of them. So, what happens next?

You really only have two options here. One, you can pursue the debt, either through the small claims court or by hiring a professional debt collection agency. Or two, you can write off the debt altogether, blacklist the client, and move forward with your business.

Be aware that although you may want to pursue the debt out of a sense of justice, it can be an extremely time-consuming and expensive process to do so. Unfortunately, there really are no other avenues to explore in this situation.

If you enjoyed this blog post then perhaps you would like to read “Recruitment – Finding & Retaining Reliable Staff“?

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