Understandably, many freelancers and other small business owners are reluctant to chase payment of invoices - they fear that it might cause problems in their relationship with the client. In honesty, we think that fear is almost always misplaced - businesses that don’t pay invoices on time generally see that as part of the general cut-and-thrust of commercial life, and are likely to think that chasing them is a perfectly reasonable thing for you to be doing!
But if you’re still not comfortable doing it, there are a couple of other routes you could consider in order to depersonalise things. You can fire reminders out of your accounts software (we’ll discuss statements of account shortly), rather than sending them personally (Xero even has the facility to send payment reminders automatically when an invoice becomes overdue - though if you do that, you need to make sure you keep everything up to date, lest Xero remind someone who has already paid!). Or (/and) you could create a separate email address for your “accounts department” and have financial stuff go through another account entirely.
Broadly, businesses tend to pay invoices based on one of three triggers:
- The invoice (either paying it immediately or in some sort of scheduled pay run). In an ideal world, you only have this type of customer! Obviously the important thing with these customers is just to get an accurate invoice out on time to the right person. If you’re dealing regularly with repeat customers, you might also consider getting something in place to just collect money from them automatically without their needing to lift a finger. We use GoCardless for 95% of our invoices; it collects them automatically by direct debit on the due date and does the Xero reconciliation of the payments for us, saving time and effort all round.
- A statement of account. This is a periodic (usually monthly) document summarising what a customer owes at a given point in time. Big businesses are very used to issuing and receiving them. They’re very easy to generate and send out via any mainstream accounting software. If you have multiple customers owing you money at any point in time, you might want to just diarise sending out statements of account every month to anyone with an overdue invoice (we do), as this will quite often prompt payment of a forgotten invoice, or a request for a duplicate of one that’s gone astray.
- A legal threat! It’s actually obviously highly unusual for that to be someone’s literal trigger, though we have been aware of a couple of local businesses over the years who routinely wouldn’t pay a bill until they got a threat of legal action. Again, for them it just seemed to be part of the game of business. Fortunately we were not amongst their suppliers! We have seen clients have success getting payment of overdue invoices simply via a lawyer’s letter, either from a low-cost online provider like Thomas Higgins, or a firm they have a broader relationship with. Of course, we’ve also seen clients who’ve had to go further down the legal process.
Something else to consider - if an invoice is paid late, you’re entitled to charge interest. This is another thing that businesses are understandably reluctant to do - but which in reality we’ve never seen cause a problem. Another part of the game for late payers.
The Small Business Commissioner has some more useful suggestions about how you might go about making sure invoices to your customer are received, processed and paid properly. Try to get past any reluctance to assert yourself, especially once invoices are actually late - from that point, most customers will genuinely recognise you’re just doing your job!
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