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Gillian Caughey helps highlight what steps you should take when your client doesn't settle their bill.
Often the reason for cash flow problems is clients not paying as quickly as you expected. You can improve your chances of being paid on time through good communication, accurate and prompt invoicing and a range of ways to pay:
If you invoice clients, it’s important to issue your invoice promptly and accurately in line with agreed terms and to make sure your invoice includes everything they need to pay you. If you have a bookkeeping or accounting system it will likely have an invoicing template you can tailor for your business. Alternatively, look for a template online that includes the following items:
It can be worth adding something like ‘Please support small businesses by prompt payment’ at the bottom of your invoice. It’s an increasing practice and quite effective in encouraging quick settlement.
Good credit control is essential for managing your cashflow. You should monitor the due dates for invoices, which invoices have been paid and identify those invoices that are late. This is easily done through an accounting system, but can also be monitored using a spreadsheet and your bank account.
It can be helpful to send a reminder to your client the week before an invoice is due and ask them to get in touch if there are any issues. If a customer is late paying, pick up the phone and ask when you will receive payment. Remember, the most persistent suppliers are usually paid first.
CEO's Bookkeeper David Baird explains what you should do when clients don't pay up:
First of all, the client needs to know that payment is due. Clearly display your credit terms on your invoice so that they are immediately aware of the credit terms of your business. It's also useful to remind them how to pay you, so also include your bank details on your invoice.
If the debt period becomes longer than stated on your invoice, I find the personal touch works best. Make a friendly phone call to discuss the invoice with your client. The invoice may have got lost or something else may be stopping them making payment. Follow the conversation up with a letter summarising the conversation.
If the client is having problems making payment, agree an alternative payment plan such as making lump sum payments until the account is settled.
If after a few weeks payment has still not been received, send a Letter of Demand, requesting payment within 14 days.
The last resort is court action. This is relatively straightforward and you don't require a lawyer. You can download the paperwork from Scottish Courts and Tribunals which can then be submitted for a small fee to the Sheriff Court. This fee is recoverable if you are successful in your case. Often the client receiving the paperwork alone acts as a catalyst for payment.