Late Payments: Debt Reminder Letters – Step-by-Step Approach

If you consider yourself the kind of business that finds it difficult having to deal with customers or clients who have an outstanding account or an unpaid bill that needs collecting, then you not alone.

The harsh reality is that “the more you delay, the less likely you are to be paid. Do not get into the position of the [businesses] who continued to work for a client on the promise of payment and of more work”

It is a fear of upsetting someone or losing a customer for daring to ask for what is yours negatively affects many people in business. No one likes to risk destroying customer goodwill by having to request assertively or demand payment, but in many cases, there is no other option. Before you find yourself having to go down that route though, there are steps you can take beforehand to try and avoid the situation escalating to such a level.

The UK Late payment for small business menace

Company Bug rightly states that “Late payment is one of the leading causes of business failure. When the cash stops flowing, many firms  – even successful ones – could be forced out of business. Keeping on top of your cash flow should be a priority for all business owners. 

The latest Bacs Payment Survey (2016) estimated that 47% of small business owners experienced late payment issues – with the average firm owed over £32,185.

Not only can a lack of cash prevent companies from paying their suppliers and staff, but it can also cost extra money in interest and overdraft charges as business owners have to resort to borrowing money while they wait for debtors to pay their invoices. These additional costs, according to Bacs, could add up to a staggering £9bn per year – around one in three small business owners spends £500 per month directly servicing debts racked up as a result of overdue bills from their customers. This figure doesn’t even take into account the administrative costs of chasing late payers.

Crossflow Payments CEO, Tony Duggan, said: “Delays in receiving payment promptly from customers is acting as a handbrake on small businesses, preventing them from making critical investment decisions for the future, and ultimately stunting growth. 

According to a recent YouGov poll, 85% of the 1100 business owners who took part said they’d experienced late payment problems at some stage over the past two years. 11% reported that late payment issues had almost caused their businesses to fail.

“In 2017, it should no longer be the case that businesses face such hurdles.“

 

Invoicing best practice

Following proper invoicing practices can help to encourage prompt payments while also reducing the incidents of late payments. Ensuring that payment due by dates and terms are clear, and also indicating any interest that will be applicable if payment isn’t made by the time agreed will go a long way to helping this part of your business run a lot smoother. These should be clear in your Ts & Cs, and we say to all natural salespeople who run businesses: Never be frightened to set out what payment terms are at points of sale.

Even taking these steps can’t guarantee that you won’t run into issues, and when that happens, you’ll want to take an approach that is both firm but doesn’t run the risk of souring relations with a valued client or customer.

Late payment letter steps

Step 1 – Keep It Friendly & Informal The first move should be to issue a short, friendly reminder along with another copy of the invoice. Many times an unpaid bill can be a result of the client simply forgetting. We all know that running a business is time-consuming, and it’s easy to forget what needs paying on what date. In most cases, this will result in an apology and make the payment, which is the ideal outcome. If they do not make the payment within a few days of the receiving the reminder, a more direct approach may be required.  

Step 2 – Be More Direct Your second letter should be a bit more formal, and with directness replacing the friendly tone of the first notice you sent them. At this point, the failure to pay what is owed can’t be put down to forgetfulness.

Step 3 – Introduce The Threat Of Legal Action If payment still isn’t forthcoming, you’re going to have to get tougher, laying out a set date by which payment must be made otherwise legal action may be the result. Usually, payment within seven days is a more than reasonable demand, giving the client time to read the letter and act upon it.

Step 4 – Issue A Final Notice If the threat of legal action hasn’t prompted them to make the payment, then you issue a final notice demanding payment and setting a date whereby you will start legal proceedings against them. One piece of advice that will prove valuable is not to lose your composure or get personal when writing these letters. It won’t make you feel better. However, it will likely lose you the customer even where the law is respected. So keep it professional, and to the point.

Next steps

If you find this process draining and it is taking valuable time away from your business expertise and skills as well as other customers, then the best option is going directly to a reputable debt collection company who can take the stress and hassle away from you. They also have far more experience in these matters and know how to approach such clients in a manner that will see a speedy and satisfying result.

Why not get advice and support from the contributor to this post:

AVC Debt Recovery (Debt Recovery for Business) 19 High Street, Great Bookham, Surrey KT23 4AA Tel: 0333 121 0161 website: www.avcdebtrecovery.com

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