Decide what a reasonable amount of time is for your customers to make payment. Most companies will choose either 30 days from invoice date or the end of the following month, but some may go with as few as 7 days or as many as 60 days.
Decide how your customers can pay you, BACS is usually the preferred method these days, but most companies still accept cheques, and Paypal is increasing in popularity too.
Most importantly you need to add your payment terms and accepted payment method to your invoice template so they are sent to your customer every time you send an invoice. You need to make it as easy as possible for your customer to make payment, because if your customer has to go hunting for your payment details then your invoice will go straight to the bottom of the pile!
Once you have set your terms think about how you will inform your new customer about them. The easiest way to do this is to create a Credit Agreement document. This document will outline your payment terms and accepted methods of payment, it will also contain information about any discounts you will give to your customer, and make statements of fact, such as: All goods will remain the property of [your business] until payment in full has been received.
Your Credit Agreement should also include consequences of late payment, for example, you will exercise your right to charge interest on overdue invoices at the current recommended rate, you will pursue outstanding monies through the courts, if you have to take a customer to court then all future purchases will require payment in advance of goods being sent.
Create space for both parties to sign and date. Easy!
Most often late payment is a result of poor cashflow from your customer. If they do not receive payment from their customers, they have no money to pay their suppliers. If your customer is an individual rather than a business, the same principal applies; if they receive an unexpected bill they may not have money to pay you until their next payday.
The most difficult part is staying calm and not getting angry. When you phone up and start yelling for your money your customer is immediately put on the defensive, which can result in them yelling back at you. That's when it really starts to get ugly!
Keeping a cool head when chasing payment is the most effective way of achieving your goal. You need to enquire about your payment, and listen to your customer's difficulty. It may just be an oversight and payment will be sent straight away. It may be that payment bounced due to an unexpected bill, but it will be with you within the week, or it could be that your customer has hit a real problem with cashflow.
When customers hit a real problem with making payment you will need to make a judgement call. Do you want to discuss spreading the payment over several months, resulting in full payment being received eventually? Do you want the product returned in part or in full to reduce or eliminate the invoice? Do you want to explore more unusual options for retrieving your debt, such as a trade of goods or services with your customer to the value of your unpaid invoice – if they have something you want.
If an agreement can't be met you may need to explore more serious options. Taking legal action is a last resort, but sadly it is sometimes necessary. Often receiving a legal letter is enough for customers to make payment without full proceedings commencing, but sometimes you have to go through the whole procedure.
Fortunately there are legal companies that specialise in debt recovery and their prices are pretty reasonable, so if you find yourself with no other alternative be sure to contact one of them to guide you through the process.
And finally, if you decide it is not worth pursuing, once the debt is six months old you can write it off as a bad debt in your accounts.
If you are struggling with chasing your customers for payment please contact firstname.lastname@example.org to discuss how I can help you.
Jamie has spent many years working in administrative roles, she has also spent time as a stay at home mum and now loves the flexibility of working from her home office and being available for her family whenever they need her.