7 steps for businesses looking to recover late payments
Small businesses in the UK are owed somewhere in the region of £255bn. Late payment does not just waste time and cause unnecessary stress, it can prove to be fatal for some small businesses. If your business is struggling with payments that are not forthcoming, here are some steps you can take to help recover the money you are owed:
Send a statement following the missed payment
The statement should simply state the amount owing and the due date; this should be sent shortly after the payment date has passed. Chasing a payment soon after it becomes overdue shows that you are serious about receiving the money and are willing to put in the time and effort to recover it. At this stage it is not advisable to threaten further action, as in most cases the payment will be made relatively soon after the due date. By keeping things civil and polite, you are helping to maintain good relations with a client you may want to use again.
Send a reminder letter
This should be sent fairly soon after the statement, to show that you are monitoring the debt. This should be slightly more formal than the statement and voice your concerns that you are worried about the lateness of the payment. However at this stage it should still just be a gentle reminder to the customer, giving them a revised payment date, perhaps 5 additional working days.
Try the personal approach
Sometimes a phone call or a visit in person to the office of the company concerned is much more effective than correspondence through email and letters. It’s much harder to ignore someone when they are standing in front of you after all. Try and sort things out with your usual contact, however if you feel as though you are getting nowhere, ask to speak to someone from the finance department.
Find out the reasons for the late payment
While you may be dealing with a company who are simply slow in paying their debts, there may be a more personal underlying reason for the lack of payment. It could be the case that they have an issue with the quality of the goods you supplied for example. If this is the case, you should look to find a way to resolve this situation in a mutually agreeable manner.
Issue a final reminder letter
This letter should make clear that this is the final piece of correspondence before you take further action. This letter should outline the route you propose to go down if payment is not made within a defined period of time. Bear in mind that you can charge them for late payment interest and add this on to the debt they owe. If you do threaten a certain course of action, you should be prepared to follow through with this, so consider your options carefully before issuing this letter.
Consider a payment plan
There may be legitimate reasons why the company is failing to pay you the money you are owed. If the company have kept in contact with you and explained the reasons for the late payment, you may want to try an alternative approach with the. If the late payment is because they simply cannot afford to pay you, you could consider a payment scheme agreeing that they can pay the full amount over a longer period of time. At this stage you may feel it better to get some of the money owed rather than none. Of course the feasibility of this depends on how large the debt is, how much they can afford to pay you now, and what terms they offer for paying the remaining balance.
Consider legal action
Legal action should be seen as a last resort if all the steps above have failed. If you go down this route you will probably have to accept that the relationship between yourself and the debtor in question may be damaged beyond repair as a result. While starting legal proceedings is not a step many of us will want to take, if your business is put at risk because of the debt, you may be left with little choice.
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