UPDATED 8TH JUNE 2018: We’ve now added a flowchart from Sage on their suggested timeline for chasing late payments and the steps you can take. You can find it towards the end of this article.
There’s nothing worse, is there? You’ve gone all out to deliver high-quality work on time and on budget. You’ve done everything you can to make it as easy as possible for customers to pay you, and yet here you are: weeks – months – down the line with a bunch of unpaid invoices burning a pretty serious hole in your budget.
Sure, things might be different if you had the huge financial resources of a big-time corporation, but as a self-employed tradesman or small business owner, your livelihood depends on customers paying their invoices if not on time at least some time.
So, how do you get on top of late payments and deal with those unpaid invoices?
Here, we offer our own tips and advice for chasing those outstanding payments, along with some handy, easy-to-use letter templates you can send when it’s time to get serious.
Check everything’s good with your invoice
Yes, you’ve sent a thousand and one invoices in the past, but let’s be honest: Is there any possible chance you could have let something slip when you were slinging together that final invoice last Friday evening when you were eager to get down the pub?
A simple oversight might be the reason your customers aren’t forthcoming with the payment, and they might not be so quick to tell you that missing information is the reason they’re holding back.
Gov.uk lists the minimum you need to include on all your invoices, so run through that first to make sure you’ve not only included everything, but that all the information, including customer name, total costs, and any reference numbers, are correct.
If not, removing the roadblock that stands in between your customers and your bank account might be as simple as reissuing an invoice. If not, it’s time to get chasing.
A nudge in the right direction
As tradesmen go, you’re pretty easy going, so the last thing you want to do is send in the heavies right from the word go.
Sometimes, it might only take a friendly phone call or an email to remind customers that the bill is still outstanding.
If that fails, it might be time to send out a formal letter.
Again, you don’t have to get too harsh at this stage, but it isn’t important to let customers know you’re serious about getting paid and this won’t just “go away.”
Write out a polite letter, giving customers a nudge to remind them that money is still outstanding. It should include all of the following:
- Your name/the name of your company
- Name and address of your customer
- Both today’s date and the original date the payment was due
- The amount to be paid
- Any reference numbers you’ve used on your invoice/in correspondence
- A short explanation that you haven’t received payment
- Instructions on how your customer can pay and how many days they have to do so before they take further action.
- A reference to your payment terms.
If all this sounds too much to put together, don’t worry. At the end of this article, we’ve included a first-stage letter template that you’re free to copy and use. Also, especially for our customers, as part of your policy, you’ll gain access to a host of legal documents through our partner, Arag – including templates for debt recovery letters.
Okay, so the friendly approach didn’t work and the payment is still outstanding. It’s time to get firm.
This time, send out a second letter including all the information that you put in your polite reminder, along with a reminder of your right to claim interest and debt recovery costs if the payment is delayed. Again, you’ll find full details of charging late payment costs on the Gov.uk website.
When even a firm reminder has no effect, it’s time to send one final late payment letter, warning that you’ll take the necessary action if payment of both the original cost and the interest aren’t paid by your final cut-off date.
Again, this letter should include the same essential information as the first two letters, such as both your name and address and that of your customers, dates, reference numbers and a detailed breakdown of the amount still owed, including those interest fees and debt recovery charges.
This time, include the following:
- An explanation that the customer is now in breach of your terms
- A break down of any additional costs being added
- A final cut-off date for payment to be sent
- A break down of the action you will take if payment still isn’t received
When all else fails, it’s time to take action to recover your losses. If you’re not sure what action to take, there’s a number of services available that can offer you helpful advice or practical, hands-on support with dealing with outstanding payments.
The Business Support Helpline is a government-run advice service that you can call from 9am to 6pm, Monday to Friday on 0300 456 3565.
If the problem is that your customer is disputing the payment, you might want to consider bringing in a mediator to offer impartial support in helping both parties to work out a solution.
Another alternative would be to contact the UK Small Business Commissioner. Another government service, the Small Business Commissioner advises against using their complaints process if you’re in the construction industry, but they can still offer advice on guidance on the appropriate action to take.
Finally, you may want to consider taking legal action, though this may not necessarily mean going all the way to court. Often, a solicitor’s letter or a money claim can prove to be pretty effective in getting you what you’re owed.
Late payment letter
Before you resort to taking legal action, however, see if a gentle nudge will do the job. You can copy the following template, adding the relevant details where appropriate.
Oustanding Amount Value: XXX
It has come to our attention that your account is overdue for payment. The above amount was due for payment on [dd/mm/yy] but we have not received your payment as of the date of this letter.
If there is any reason why payment has not been made, or if you believe the payment has already been made, please contact us within the next XX days.
As per our original agreement, our payment terms are [XX] days from the date of invoice. Further delay may result in later payment charges and further action.
[Your Name/Business Name]
Don’t like the look of this template? You can find scores of others online from websites such as My Credit Controllers, and our customers will even be able to find them with their login to Arag, provided free of charge with every Tradesman Saver insurance policy. Log in to find a host of debt recovery letter templates and documents to help you.
If you’re looking for a bit more information on a specific timeline to follow for when to send out letters and what action to take at certain points along the process, Sage have produced this incredibly useful guide on their blog, as well as an informative infographic, which you can find below:
What has been your worst experience in dealing with a late payment? Did a polite reminder work or were you forced to take action? Share your experiences with us in the comments below, or get in touch via Facebook and Twitter.
Tradesman Saver also provides insurance for tradesmen covering a wide variety of professions, as well as insurance for self-employed professionals. For further information, please see our Tradesman Insurance, Self-Employed Insurance or Who We Cover pages.