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Unlocking cash – without borrowing!

By Andrew Kingstone - Updated on August 10, 2021

Collecting overdue invoices? Here are some pointers in the process!

Your collection process is key to unlocking payments

It is not just the importance of that money to the business – particularly if it is a significant sum. It is also the fact it can consume so much time. This diverts your teams’ attention away from other invoices and prevents business owners from focusing on running the business – this is what they are good at.

Despite this being a situation, many businesses face regularly, it does not necessarily make it easier to recover outstanding invoices. Sure, past experiences help, but every customer and their reasons for not paying can be very different.

Nevertheless, there are steps your business can take when chasing overdue invoices from clients to maximise your chances of a fast and successful resolution whilst reducing the burden.
Here, based on our three decades’ experience as a commercial debt collection agency, we outline some of the most important.

  1. Pursue payment of overdue invoices outside credit terms immediately

Seems obvious, right? Yet it’s amazing how many businesses take too long to chase their customer or inform them the invoice is overdue – whether because they’re not close enough to their credit function to realise or because they hope the customer will pay by their own accord.

Chasing them straight away is an important step for several reasons, but ultimately to help identify why payment has not been made.

It could be down to a genuine mistake or an oversight that they will rectify immediately. Or it could be that there are major issues preventing payment. Perhaps they are experiencing cash flow problems, there’s an issue with the invoice – or maybe they didn’t receive it. By contacting them quickly, you can understand why payment is outstanding early and work with them to resolve any issues.

Another benefit is that it demonstrates you are on top of your credit control and that their payment is important. If your customer has multiple invoices unpaid, this action could get yours attended to first!

Conversely, not contacting them will only fuel their belief they can withhold payment for longer. Remember too that, from our experience and statistically, the longer an invoice is unpaid, the harder it becomes to recover.

  1. Confront client’s reasons for non-payment

Taking your customers’ reasons for not paying your invoice and their proposed remedies at face value is a common mistake. Their excuses could be stalling tactics that only push the late payment date further down the line – we are seeing recidivist offenders (late payers) use the current COVID environment as a reason for late payment – when in fact they are always poor payers!

Solutions to common late payment excuses:

“You didn’t supply the invoice”

Take a direct email address to send a copy of invoice immediately. Then call to confirm receipt and ask for payment as soon as possible.

In the future, call your customers after sending the invoice to confirm receipt and avoid this excuse altogether.

“We have a problem with the invoice/goods/service”

If the customer is disputing the information contained on the invoice or they’re unhappy with the goods or services provided, it may be something that can be quickly resolved. If not, but the dispute only relates to part of the work, ask for payment for the undisputed part while the dispute is resolved.

Where possible, ask for confirmation that payment will be made immediately once an agreed-upon resolution has been carried out. Also, ensure all communication is recorded for future reference.

If this happens, please review, and ensure your Terms & Conditions contain a clause stipulating that any disputes should be notified within a certain number of days from completion of the work or supply of the goods.

“There are no funds to pay”

This is good news – the client is having cash flow issues and they are working with you – silence often means far worse things. This interaction may put you at the top of the payment pile. Ask when the client feels they will be able to pay the invoice, as it could be that they are waiting for a large payment from their own customer very soon.

If they’re confident they’ll be able to pay by a certain date and you’re comfortable with that, ask for written confirmation and then follow up should payment not follow. Alternatively, ask them to pay what they can now and the remainder on the date they gave you.

Where your customer assures you, the outstanding payment will be made shortly, ask when you can expect the cleared funds to be in your account. Set a reminder to check. If you haven’t received payment, be sure to follow up again and let them know – if this fails a payment arrangement may be your next option.

  1. Consider charging interest/costs

Did you know that, legally, (provided your terms and conditions of business allow it) businesses can charge interest and costs of collection on overdue invoices?

This can help compensate businesses for the impact of late payment and contribute to the costs of chasing overdue invoices. If it is a long outstanding payment, this can very quickly add up.

Not every business chooses to do so, given the concerns over the impact this could have on relationships. But even if you decide not to enforce it, making your customer aware of your trading terms can be a useful incentive to prompt payment.

  1. Revise your cash flow forecast

If an invoice is overdue and you are not expecting payment imminently, it’s important to consider the impact this could have on your business and cash flow.

Remembering that you have financial commitments (wages/operating expenses) it is important the cash flow of your business is reflected correctly. By updating your cash flow forecast, it will be easier to measure any delayed payments will have on your business and spot where any shortfalls exist. This insight could in turn dictate the urgency and methods you use to chase your customer for payment.

If you are going to experience cashflow issues, consider offering early payment incentives to other customers whose invoices are not yet due, or look at other options around a short-term facility to assist.

Maybe contact your suppliers to explain the situation and negotiate an extension on any invoices owed – this is something that needs to be managed delicately given the long-term effects it may have on trading relationships.

  1. Research your options

It is not just the importance of that money to the business – particularly if it is a significant sum. It is also the fact it can consume so much time. This diverts your teams’ attention away from other invoices and prevents business owners from focusing on running the business – this is what they are good at.
Despite this being a situation, many businesses face regularly, it does not necessarily make it easier to recover outstanding invoices. Sure, past experiences help, but every customer and their reasons for not paying can be very different.
Nevertheless, there are steps your business can take when chasing overdue invoices from clients to maximise your chances of a fast and successful resolution whilst reducing the burden.
Here, based on our three decades’ experience as a commercial debt collection agency, we outline some of the most important.

Gravity Credit Management is a specialist debt collection agency  with more than 25 years of experience. If you need help with debt collection or have questions, please get in touch with us at [email protected] or 0800 GRAVITY.

Andrew Kingstone, Managing Director
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