With the first two months of the year typically the worst for late payment, a leading debt recovery law firm has provided some advice to small businesses on how to deal with late paying customers by being tough from the moment an invoice becomes overdue.
Here are 10 tips to get tough with late paying clients, based on advice provided by Lovetts.
Tips to tackle late payment
1. Don’t cut back on your credit management resources, and give customers the right signals that you wan to get paid on time. Send your invoices on time, make sure you have a contact in your customer’s accounts department, and make sure you know the moment an invoice becomes overdue.
2. Make sure your customers know that you expect payment to be made within a certain number of days (30 days is typical). Make it clear that your firm will take action against late payers, and charge interest on overdue payments.
3. Work out how much it would cost to take legal action against a late payer (e.g. interest, compensation, indemnity costs). Inform your customers what the likely costs would be, as a £1,000 debt could quickly grow by 50% if legal action is initiated.
4. Use a Late Payment demand (LPD), not just a Letter before Action (LBA).
5. Consider using a draft Winding-Up demand if a company owes £750 or more. Don’t rely on just sending a letter. Not only will this provide maximum impact upon delivery, but customers will also know that this action carries the risk of a public advertisement.
6. Before you initiate any late payment action, call the customer to remind them how quickly legal costs can escalate if payment is not forthcoming.
7. When instructing a legal adviser to take action against a late payer, make sure you inform them of your entitlement to interest, compensation and any other costs you may be entitled to claim for.
8. After issuing a claim, ask the debtor if they want to avoid judgment (which will affect their credit rating) – Lovetts say that 50% of clients will.
9. Before instructing a debt recovery solicitor, find out what your legal position is and likely costs which you will be liable for, before sending a Letter Before Action.
10. Lovetts remind small businesses that being tough this time might save you the bother next time.