When you’re running your own contracting business, it’s important to get paid promptly by your customers so you can keep your cash flow healthy and ensure your business stays on the right track.
But in reality, that’s not always going to be easy to achieve. Some customers may not pay you on time and there’s nothing more frustrating than having to wait ages for the money that you’re owed.
So how do you deal with these late payers and chase your outstanding invoices effectively? Emily Coltman FCA, Chief Accountant to FreeAgent, takes a look at five types of late-paying customers and how to deal with them.
Chronic late payers
Many businesses will encounter a chronic late payer: the type of customer that will always pay up eventually but not until long after you asked them to pay. They won’t necessarily give a reason for their tardiness, but their unpaid invoices will quickly drain away your healthy cash flow if you’re not careful.
Make sure you maintain a list of customers that owe – or will soon owe – your business money and check this regularly. By keeping an eye on this you’ll be able to identify clients that frequently pay late and chase them as soon as their payment is due.
To try and prevent a late payment, call them as soon as your deadline for payment has passed. On the call, you can check that they have your invoice and ask when they plan to pay – and follow this up regularly with further calls (if you don’t want to be drawn into a long conversation on the phone, stick to emails instead). And if you’re using accounting software, you may even be able to generate automatic reminder emails that will be sent at regular intervals until your invoice is paid. Just don’t give up!
The ones who forget your payment details
Some clients have a tendency to misplace your bank details when it’s time to pay, so it’s a good idea to make these as clear as possible in all your correspondence with them. Double-check that you’re always including your bank details on your invoices and that they are clear and obvious – not hidden away in a small, difficult-to-read font.
Alternatively, you may be able to offer a more immediate option by allowing your client to pay you online. Services like PayPal and GoCardless are great for this and, if you’re using accounting software, you could even add a payment link to these services on your invoice. That means your client can then just click to pay you online via their bank account or credit card, and there’s no room to forget anything.
Those who can’t afford to pay just yet
Don’t assume that if a client hasn’t paid you yet, that they’re not planning to do so at all. Any business can go through unforeseen difficulties, and they could just be facing short-term cash flow problems.
Pluck up the courage to have that awkward conversation with them. Pick up the phone to ask when they plan to pay you and check to see whether they’re having issues and genuinely need more time. If it is just a short-term problem with a good client, you could maintain a good relationship by offering an extension rather than enforcing late charges. Or, alternatively, you could take part of the payment now and the rest when they can afford it.
Those who can’t afford to pay for much longer
Giving a client a few extra weeks to pay up as a display of goodwill is one thing, but it’s different when that customer needs much longer to pay you. For example, they may have had a big deal fall through and have dozens of other pressing bills to pay before they can get to yours. How do you best deal with this kind of scenario?
In these cases, demanding immediate payment or issuing late fees is unlikely to be effective, as this type of customer simply can’t afford to pay you in full yet. Instead, consider arranging some kind of payment plan with these clients, where they pay in instalments. That way, your cash flow won’t be as badly affected as it could have been.
There’s nothing worse than having a client that just disappears without a trace. You try to contact them to pay but they won’t return your emails or calls and you just can’t get hold of them at all.
Some of these customers may have never had any intention of paying you in the first place – or else they have some other unknown reason for ducking your calls – but you’ll need to deal with them all the same way. You need to make a choice – either hire a professional collection agency, (or for smaller debts, pursue your client through the small claims court) which could be time-consuming and end up costing you money, or you can cut your losses and write off the invoice, before putting that client on your blacklist.
Finally, regardless of which late paying customer, you’re dealing with, remember one more important thing; don’t keep selling to them, hoping they will eventually pay up. You’ll only end up risking your business losing more cash and putting its future in jeopardy. Collect the money you’re owed before you do any more work for that customer and, if possible, start looking for more reliable clients to work with in the future.
Thanks to Emily Coltman FCA for these words of wisdom. Emily is Chief Accountant to FreeAgent, who provide award-winning online accounting software designed to meet the needs of small businesses and freelancers. You can get a 30-day free trial and 10% off for life by clicking here.
If you need professional help with a persistent late payer, take a look at our partner debt recovery service – Safe Collections – who’ll be happy to help.
- Tax-efficient protection for contractors - life insurance and income protection - your company pays the premiums.
- Need a new accountant? - compare 30+ specialist firms
- Switch between umbrella and limited - flexible solution from Nixon Williams for contractors who may be affected by the Off-Payroll changes.