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If you are a small or medium-sized business, having good cash flow will be very important for staying afloat and keeping your business in good financial health. Because your cash flow is determined by the money you are paid from your consumers, you must know how to get paid on time. This article will outline five useful tips on how to get paid on time, as well as some of your legal rights if you do not receive a payment.
1. Set Your Terms
Managing expectations and terms is an essential aspect of ensuring that you and your consumer are both aware of your obligations. As a result, it is best to clearly define your terms from the very start of your business relationship. Some of these terms should include payment terms.
Payment terms will state:
- when the other party should pay;
- how much the other party should pay; and
- what happens when the other party fails to pay on time.
This is an excellent way to avoid late invoices due to miscommunication or confusion about when payment is expected. It can also encourage early payment from your customer. Finally, it will help you avoid awkward conversations about overdue payments, as you will have already formalised the payment terms of your agreement.
2. Send Your Invoice on Time
Making sure you send the invoice on time is another method of avoiding payment problems due to miscommunication. Your invoice should include the:
- company name;
- payment terms;
- amount due;
- payment details; and
- purchase order number.
If your customer receives the invoice on time, you can reduce the risk of unpaid invoices due to your mistakes.
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3. Reward Early Payment or Set Up a Recurring Payment Option
Offering a financial incentive for early payment can be another way of encouraging your customer to pay early.
In this case, a small discount might be better than a financial punishment if the customer pays late, especially if the customer is having financial difficulties.
Further, you can set up a recurring payment option if you have an extended business agreement with the customer.
4. Communicate With the Customer
Communicating with the customer to ask why they have been unable to pay on time is a good way of understanding how to resolve the issue. Unpaid invoices can result from many reasons deserving of your sympathy, such as financial difficulties.
However, if your customer is another business, you may benefit from restructuring their debt completely, especially if you are charging interest. All in all, understanding why your customer is unable to pay is an essential aspect of making sure that you can address the issue effectively. It can sometimes be the case that they will be able to make up for their unpaid invoices next time, or there is a legitimate reason for payment delay.
5. Use Your Legal Rights
If you have done all of the above and the customer still cannot pay, you may wish to use your legal rights against the customer. After talking to the customer and understanding their position, you can use a letter of demand if they remain uncooperative.
A letter of demand is where you tell the customer that you are ready to use your legal rights against them and are prepared to take them to court. Going to court is a lengthy and costly process for all parties involved, and it is sometimes the case that the losing party will have to pay the winning party’s legal fees. As a result, the threat of going to court might make your customer make the payment that they owe you.
Key Takeaways
Making sure you are being paid by your customers is vital for overall cash flow within your business, and there are a variety of ways of helping your customers make prompt payments. For example, you can incentivise them through a small discount or make sure that it is straightforward to pay you by using clear and accessible invoices. Finally, you can threaten them with a letter of demand if nothing else works.
Overall, the decision you make on how to deal with unpaid invoices will depend on the reason for the customer failing to make payment, so you should communicate with them before proceeding with legal action.
If you need help with receiving payment on time, our experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Question
A letter of demand is a letter that lets the other party know you are ready to use legal action if they do not accede to your demands.
The payment terms will typically include the amount due, the date it is due, and the consequences of late payment.
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