Let’s talk about Bad Debt (3) - How you can manage customers in arrears

Blog

By Bibby Financial Services

29 Apr 2019

Managing customers in arrears can be a real challenge for you and your business and although there’s no magic formula to avoid it completely, most payment disputes can be avoided with a clear invoicing process and quickly resolved with a gentle reminder.

While you can never guarantee that every single customer will pay your invoices on time, there are some simple steps you can take to keep late or missed payments to a minimum.

Chase invoices persistently, but politely

Once the payment is late, get in touch with your customer to find out why they’ve not paid. Speak to the right person and ask them for a date when they can make payment. If they don’t reply, or miss the deadline, call and email them again. It’s always helpful to be polite and firm. Being confrontational isn’t going to get your invoice paid any faster, and could even lose you a customer.

Offer alternative payment terms

In many cases you’ll find that your customer isn’t avoiding paying you, but more likely because they’re facing issues. When you talk to them, see if you can work out a payment plan, or offer a good faith payment now and the rest at a specified date.

Add interest or late payment charges

Remember that you are legally entitled to add late payment interest once an invoice has passed your payment terms (usually 30 days). You can also make a fixed late payment charge to cover your costs of recovering the debt. However, you should let your customers know this at the outset and include it on your invoices.

Remove credit terms for persistent non-payers

If you have customers who persistently pay you late, consider reducing or removing any credit limits that you’ve agreed with them. You should reference this in your Terms and Conditions from the outset.

Legal action as a last resort

If you’re not getting anywhere recovering the money you’re owed, or your customer consistently misses the deadlines you give, send a polite but firm email and letter giving them seven days to pay before you intend to take any legal action to recover your money.

 


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