How to manage late payments
Cashflow is king for any small business and having to manage late payments can be incredibly difficult. If debt builds up, then it becomes tricky to manage your own bills causing issues with paying suppliers and employees. When faced with the difficulties surrounding debt recovery there are 5 key steps that can be taken:
Step 1 – Adopt a reliable process when late payment occurs and ensure a clear line of communication is deployed. If payment does not arrive during the agreed terms, ensure a reminder is promptly sent. The reminder can be in the form of a telephone call, e-mail or re-sending of the invoice. Make sure that any contract clearly displays your payment terms and includes a caveat that if payment is late then penalty charges in the form of interest will apply. Finally, if payment continues to remain unpaid then cease any future work until the debt is paid.
Step 2 – Government legislation states that in certain cases you can start to charge interest on outstanding debt. Make sure that this is included in any Terms & Conditions of Sale. The rate can be up to 8% of the Bank of England base rate.
Step 3 – Send a letter before action. As the name implies this is the sending of a formal communication via the post or via e-mail. It will advise the client that if outstanding payment is not received within a specific date, then legal action will be taken.
Step 4 – Send out a late payment demand. When worded correctly a formal communication is sent which quotes the Late Payment of Commercial Debts (Interest) Act 1998 stating that the company owes the cost of the original invoice plus interest costs.
Step 5 – Make sure that all data is accurate and don’t take longer than 6 years to reclaim the debt. Ensure every formal document is 100% accurate, for example if the business owing money changes address, then make sure it is accurately documented. Companies will try to put all sorts of barriers in place as a delay tactic to avoid making payment. Be aware that if the time period reaches in excess of 6 years, then it will be classed as statute-barred, meaning as a business you will have to write it off as bad debt.
If you have any questions or need some help in regard to managing late payments then our team would be happy to help. Please call us on 01173 700 079 or e-mail email@example.com. You can also book a free 30-minute call with Yarka – https://calendly.com/yarka-ssa/30min