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Top tips for preventing and chasing late payment


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Recent research has shown that many small businesses are scared of chasing late payment. But, if a customer doesn't pay you, they're hanging on to money that is rightfully yours and you shouldn't be afraid to ask for it. All small businesses should have a routine system in place for following up non-payment that includes letter, email, and telephone, but be prepared to act more quickly if the amount is large or you are concerned about the customer. If you can answer yes to the following questions about an outstanding payment, you can legitimately chase late payment. Did you agree the payment terms with the customer before you accepted their order? Are you sure the invoice is accurate and no dispute has been raised? Has the payment due date passed? Has the customer confirmed receipt of the invoice? Do you have proof of delivery for any goods delivered? Does the invoice say how and where payment should be made? Do you keep a record of all collection activity? You also have the statutory right to interest and compensation, introduced under the Late Payment of Commercial Debts (Interest) Act 1998, on all contracts agreed after 7 August 2002. Top tips for preventing and chasing late payment If the invoice is large, call the customer before the payment due date to make sure it has been received and there is no query. Not only will this highlight any potential problems but it is also good customer service. Make immediate contact when payment has not arrived, be assertive about what you expect and when you expect it, and make the consequences of non-payment clear. Follow up promises to make sure they're met. If a customer persistently pays you late or makes excuses, check them out by using a credit reporting or business monitoring service and consider whether you're prepared to continue supplying on credit terms. It may be better to lose an order, or even the customer, than supply goods, not get paid and suffer a bad debt. When that happens you lose the goods and the money you're due. Be polite, professional and persistent; do what you say you're going to do when you said you were going to do it. Try to get customers to pay by electronic transfer or Direct Debit to avoid waiting for the cheque to arrive. Always write and advise your customer that you will be exercising your statutory right to claim interest (at 8% over the Bank of England base rate) and compensation for debt recovery costs under the Late Payment legislation and that you will be taking further action – this might be enough to prompt them to pay. If you can't get paid for the outstanding debt, don't let it grow. Stop supplying any further goods or services. If your product or service is important to your customer, it might be just the lever you need to get payment. Use a debt collection agency to act for you. They will often work on a no recovery no fee basis, collecting debts is their specialist area, and most will escalate action through their own legal partners if it becomes necessary. You should be aware that the percentage commission can be substantial if they succeed, especially if the debt is large (see CSA members to find agencies who belong to the Credit Services Association and follow its code of practice). Always consider the commercial reality – if the customer is insolvent or has no available funds, further action is unlikely to help, and consider the costs of any action against the size of the debt. Find out more about insolvency and what to do when your customer goes bust. About the author These tips are from a series of guides written and produced by the Institute of Credit Management and supported by the Forum of Private Business. For more tips on getting paid and advice on best practice in credit management, or to download all the guides in the series, visit