3 Things to do with overdue invoices & 2 Ways to prevent late payments
When an invoice becomes overdue, it puts pressure on your cashflow. You might be planning to use the money you’re owed to pay company bills or to fund future projects, so not being paid on time can really throw a spanner in the works, stifling your business and preventing you from achieving your goals.
But how should you react when a customer doesn’t pay you on time? Here, we share our advice on the steps you can take to recover your money promptly and prevent late payments in future.
Before an Invoice Becomes Overdue
1. Always be aware when payment is due
Keep on top of your sales ledger and be aware of all upcoming payments. Start sending friendly payment reminders to clients seven days before invoices are due. That way you will leave them plenty of time to respond. If you have clients on longer payment terms, you should send them a monthly statement which details their total outstanding balance.
Encourage your clients to let you know if any of their invoices are in dispute or will not be paid on time for any reason. Don’t feel embarrassed about chasing for payment, it won’t damage your relationship with your client.
2. Respond to customer invoice queries
Sometimes invoices are paid late because of simple admin issues, such as the client querying a detail on the invoice. Make sure you respond to customer invoice queries promptly so you can iron out any issues before payment is due.
When an Invoice Becomes Overdue
1. Send reminders as soon as payment becomes overdue
Once payment is overdue, start sending payment reminders requesting that the invoice be paid immediately. Keep the tone of your reminders calm and professional. Try these free payment reminder email templates for best results.
Once payment is due, you are legally within your right to charge your client late fees.
2. Add late fees to overdue invoices
Late fees are discretionary. Not everyone chooses to apply them, but they can be an effective way of ensuring your invoices are paid promptly.
You should tell your clients in advance that you will be adding late fees to overdue invoices. You can do this by sending them an email which outlines your payment policies and by adding your late fee policy to your invoice payment terms.
Late fees are calculated in line with the Bank of England’s statutory interest rate, which is 8% plus the Bank of England’s base rate for B2B transactions.
If you’re a Satago customer, you can add late fees to your payment reminders at the touch of a button. The app will calculate the fees in line with statutory limits and add them to your payment reminders as soon as an invoice becomes overdue.
3. When to consider legal action on overdue invoices
If your customer fails to pay you beyond a reasonable period, it may be time to consider legal action.
Often, the threat of legal action is enough to encourage debtors to pay up. So, before going any further, you should write an email or letter to your debtor to inform them that you will be taking further action if they do not pay within seven days. If your debtor fails to respond, there are several options available to you:
- Apply to a mediator — professional mediation services are designed to help you come to an agreement with your debtor without the need for legal action. For example, they could help you agree on a payment plan if your debtor is having financial problems. You can search for local mediators using the Ministery of Justice online directory.
- Make a court claim — if the amount you are owed is £100,000 or less. You can make a court claim online through Gov.uk. You will be charged a fee for making a claim although you may get this back if your case is successful.
- Make a statutory demand — after you have issued a statutory demand to your debtor, they have 21 days to pay you before you can begin bankruptcy or wind up proceedings. You can find the statutory demand forms here.
- Apply to bankrupt your debtor — if your client fails to pay their debt within 21 days after receiving a statutory demand, you can apply to bankrupt them to recover the money you are owed (if the debt is £5,000 or more) or begin wind up proceedings (if the debt is £750 or more).
Legal action should always be your last resort when collecting debts. If you have a robust credit control strategy in place, you may find that you can avoid legal proceedings altogether.
Satago is designed to help get your invoices paid faster while maintaining excellent client relationships. The app integrates with your accounting software and email provider and sends automated payment reminders to your customers from your own email address, so you don’t have to worry about chasing them.
Gemma Parker works for Tussies Chartered Accountants and became a Satago customer in 2020.
“The response from the first week of email reminders was fantastic,” says Gemma, “we brought our 90+ day debtors down by £12,500 in one week. Our debtors continue to drop thanks to the weekly email reminders sent to clients.”
To try Satago for yourself, sign up for a free two-week trial and see how much debt you can recover.