Tips to Tackle Late Payments From Customers

For any business, cash flow is vital. If your customers fail to pay your invoices, this could result in severe financial difficulty and impact your business operations. There are various practical steps your business can take to tackle late payments from customers. You can also pursue multiple legal avenues with a lawyer’s help. This article will explore some critical tips for business owners to tackle late customer payments. 

Why is Late Payment an Issue for Businesses?

There are several reasons why a customer may pay an invoice late. For instance:

• the customer is struggling with cash flow problems or generally being difficult;
• your business has not invoiced the customer on time;
• your invoice or contract payment terms are unclear, leading to misunderstandings; or
• the customer could be unhappy with your services and withhold payment. 

Whatever the reason is, late payment can result in several negative consequences for your business.

Tips to Tackle Late Payments 

You can take several proactive steps to tackle late payments from customers from very early stages. Taking these steps can help reduce the risks of cash flow issues, difficult conversations with customers and legal costs you could incur when trying to recover debts. 

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Below, we will explore some essential tips to plan and tackle late payments before and after they arise.

1. Mitigate Against the Risk Before it Occurs

Some valuable ways of mitigating the risk of non-payment before it occurs include: 

• from the outset, carry out customer due diligence. Check the creditworthiness of new potential customers. Ensure that when pitching to new customers, they know what you will charge and are confident that they will be able to pay;
• sign robust contracts with customers, which protect your business. Several payment terms can save your business time and money in the event of late payment. For instance, you can recover additional sums from late-paying customers by including penalties for late payments, such as interest clauses. Or, the right to terminate the contract if the customer pays late could be valuable if a customer’s late payments become a constant problem. These contractual provisions can also help deter customers from paying late, as they will not want you to charge interest or end your agreement with them;
• ensure you invoice promptly and correctly. For instance, check that your invoices are accurate to avoid them being questioned by customers. Also, ensure your invoices are clearly labelled and lay out the products or services you have delivered to prevent questions;
• consider incentivising customers by offering discounts for early payments, if commercially viable for your business; and
• communicate with customers regularly and keep them aware of your charges and any changes in your payment processes or terms. Also, communicate with them regularly and provide an excellent service to avoid customers complaining and avoiding payment. A disgruntled customer is less likely to pay your bills on time. 

2. Have a Process for Tackling Late Payments 

Some valuable elements of a late payment process include: 

• ensure you have a process to monitor payments so your business can easily track where customers have paid late;
• implement a credit control process to manage late payment risks, for instance, by sending payment reminders at regular intervals; 
• keep records of all late payments and your attempts to chase them. This could help serve as evidence at a later date, for instance, if you proceed to take formal legal action; 
• speak to customers who are regularly paying late and gauge whether there is a problem you need to know about. You may be able to discuss a comfortable resolution which works for both parties; 
• try to discuss late payments with your customers in a friendly manner and keep an open mind. Ideally, a friendly and informal approach will encourage your customers to settle their invoices quickly. If a customer cannot pay, try to negotiate a payment plan that the customer can afford. If a payment plan arises, document it in a formal contract and execute it correctly; and
• review your processes at regular intervals to assess room for improvement.

3. Consider Escalating to Formal Legal Action if Other Options Fail

Sometimes, your business will need to consider legal action to recover monies.  When doing so, it is worth having some of the following points in mind:  

• if more informal attempts to recover payments fail, understand your legal options so you can make an informed decision. Consider the best route commercially – for instance, it may not be worth spending thousands of pounds in legal fees to recover a small debt; 
• consider working with debt collection agencies, who are specialised and experienced in collecting debts on behalf of businesses. This can help take the pressure off your business so you can focus on delivering your products and services to customers; or
• if required, consider legal action to recover late payments, for instance, by instructing a law firm to issue a formal statutory demand requesting payment of the debt within 21 days. Or, taking court action to recover the debt in the worst case. However, you should initially consider informal alternative dispute resolution options, such as customer mediation.

What is the Best Strategy to Tackle Late Payments?

If your business needs to tackle late payments, you must carefully decide the best strategy. This will depend on the circumstances, for example:

• How late is the payment? 
• How much are you owed?
• Do you wish to work with the customer again? 
• How much time and resources do you have to put into the debt recovery process?
• What is the likelihood of you recovering the amount owed?

These factors will dictate which type of action you should take, formal or informal. If you require support with understanding your options, seek legal advice. Formal action, such as a court claim, should always be the last resort. 

A lawyer can guide you on the best course of action, depending on the circumstances and the best strategy to recover the payments owed. 

Key Takeaways

As a business delivering products or services, it is sensible to put systems and procedures in place for resolving late customer payments. By planning, you will be better positioned to resolve late payment problems when they arise. There are several options for resolving late payment problems from customers, both formal and informal. If you require support understanding the best choice for your business, you can seek advice from a lawyer to help you navigate the best course of action. Overall, remember that preparation is vital and will put you in the best position to avoid late payments from arising. 

If you need help tackling late payments from customers, LegalVision’s 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.