Why are late payment letters so important?

Blogs 23 Jul 2020

Back to business means back to paperwork. Learn how you can take control of your late payments with our top tips for getting invoices paid.


Across the UK, businesses are slowly opening their doors once again. As we enter the recovery phase, effectively managing your cash flow will be critical.

Sadly, late payments have long been an issue for small businesses and the self-employed, and a recent report by the Federation of Small Businesses (FSB) found that 62 per cent of small businesses experienced an increase in late payments as a result of COVID-19.

Clear communication is often all it takes to settle an invoice, which is why late payment letters are so important to the debt recovery process. Having everything in writing from the beginning can help your case if the situation escalates.

As a small business owner, it can be easy to worry about looking aggressive or unreasonable when chasing overdue invoices, missed payments or late fees.

We’re here to help with 10 tips for getting back to business:

Track your invoices

If you don’t know what’s owed, you can’t chase it! Getting organised with your paperwork can help you to chase payments promptly if they become overdue. Once you know who owes what and when, you can start to send reminders.

Send a friendly reminder letter

This is often the first step you can take. Simply remind your client of the payment and request that they pay as soon as possible. Gentle reminders can be effective for getting money moving.

This also serves as evidence if you have to progress from chasing non-payment to pursuing legal action against a client.

FSB members can download a free template letter from FSB Debt Recovery.

Consistent communication

Adopt a polite but firm approach when reminding your customer about any outstanding payments. Sometimes, a quick email or phone call is enough to resolve the matter and get paid.

You may wish to ask the following questions:

  • What are the reasons for non-payment?
  • Are any financial difficulties likely to be short-term or long-term?
  • Is it possible to reach a compromise?
  • Would a payment plan help them to settle the debt?

You could also reiterate the terms of your contract with the client, and inform them that you don’t want the situation to escalate beyond them paying late.

Have a clear policy for handling late payments

If your reminders are being ignored, be clear on the process your business follows, such as the number and frequency of reminders. This includes sending prompt letters reminding clients of late payments.

Don’t delay

If you’re not successful straight away, don’t despair. It’s best to keep reminding of overdue invoices, and don’t hesitate to pick up the phone. You’re entitled to what you’re owed and your client will find it more difficult to avoid discussing payment on a telephone call than it will to ignore an email or letter.

Add late payment charges

Your policy should have details about your charges and interest on late payments, so don’t be afraid to apply these when payments are overdue. Be sure to keep a record of these charges. If you don’t have anything express in your contract then such terms may be implied by statute.

If you’re not sure how much you should be charging, FSB Debt Recovery offers an easy to use late payment calculator to work out how much interest to charge on unpaid invoices and when late payment compensation is available.

Avoid bad debt

Be careful of ending up in a cycle of bad debt, where late payments turn to non-payments.

Don’t continue to supply goods or services if payments aren’t being made in line with your contract terms. Advise the client in your letter that you will be pausing all future work until the existing bills are paid.

Don’t continue to supply goods or services if payments aren’t being made in line with your contract terms. Advise the client in your letter that you will be pausing all future work until the existing bills are paid.

Consider changing credit terms

If a client consistently pays late, it’s wise to remove or reduce their credit terms, as long as this is within your terms and conditions. This will encourage your client to pay on time.

Carry out a cost-benefit analysis

Before taking any legal action, a cost-benefit analysis can help you to weigh up whether the amount owed justifies further action beyond reminder letters, such as any additional legal fees and management time. You should assess the benefits of acting compared with any associated costs.

Send a formal letter before action

When all else fails, a letter before action makes it clear that if payment is not made, you’ll have no choice but to take legal action. FSB members can download a free template from FSB Debt Recovery or can choose to instruct Markel Law to send a letter before action on their letterhead for a reduced fixed fee.

We strongly advise that you seek legal advice before taking action. Our legal advice line is available 24/7 for FSB members.

We’re here to help

Almost 2,000 small businesses used our new FSB Debt Recovery service to help them chase late payments in June – and for 99% of members, it didn’t cost them a penny.

With an easy step-by-step process, as well as downloadable guides, letters and expert advice to support you along the way, we’ve made the process simple.

Where litigation does prove necessary, we’ve partnered with Markel Law to provide fixed fee legal advice and support on the full range of debt recovery actions from issuing a claim through to enforcement.


 

FSB Debt Recovery

Our FSB Debt Recovery service will assist you in recovering the money owed to your business. through a bespoke range of guidance, template documents and letters, as well as 24/7 legal advice from qualified and experienced lawyers.

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