Overdue Invoices – How to get em to pay up !!
This is my first post here so hello everyone at the forum. My name is Dan Morris and I run Quick Image, a design and marketing agency.
Its a shame my first post has to be about overdue invoices, but it id a big part of business.
I was wondering how other people approach this common problem. The issue here is with sub-contracted work where your client cannot/won’t pay you until they have been paid. This seems to be an industry standard but as I refuse to participate and I always pay my suppliers within their terms, effectively stuffs me up when i don’t get paid!!
I realise I can charge them interest but even that is a sticking point as that also has to be charged by invoice, and could also be the difference between a continued relationship with a client and a lot of lost work and income.
Has anyone got any practical solutions or opinions on this issue?
Hi Dan and welcome to the forum,
Your problem is a tough one as I know this sort of practice is endemic in some industries, and the really hard bit is you really don’t know if the end buyer has paid or not.
I quite agree there is a real hard balance between annoying customers and getting paid. There is however a balance the other way around too – your customer annoying you the supplier by paying late so it isn’t all one way.
I think the only way to approach this is head on when you are signed up for the work. You need to raise the question of payment quite clearly when you are pitching and not bury it within the fine print of your contract. At that point it’s a lot easier to agree beneficial payment terms and make it clear with eyeball to eyeball contact that you expect to get paid within (say) 7 days of completing the work. And the shorter the term you specify the more likely you will get paid. [Zero days = within 7 actual, 7=14, 30=60 etc. I specify “on completion” on my invoices and rarely have debt over 30 days, most comes in within the week] People often agree when they are in the “really wanting you onboard” stage rather than the tail end "lets just get this over with" mindset of payment.
If it is a regular client then you can remind them of their promises when they don’t come up with the payment and you may be able to convince them that you want paying on time. It is worth being quite forceful about this if you have a deal. Ie ringing up on the 7th day to “just to check” payment is on its way as per your agreement, perhaps with a little chat about something else to make is seem that you aren’t just after the money. People don’t tend to be that worried about your chasing for payment if you do it politely and within the contract terms as they generally realise they are in the wrong. You can often get into a culture of “Dan needs paying on time or he will start moaning – better sort him out” which is great for your cashflow!
Bundled in with this you could offer a (say) 5% discount for prompt payment. This might get things moving. Of course all you do is hike your prices by 5% so you don’t lose out……so it is entirely notional, but if they do pay late you get an automatic 5% for your trouble.
Anyway some things to think about.
Hope you get your cash in,
James Smith [i]Chartered Accountant[/i] www.jamesesmith.co.uk --------------------------- Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
I agree with everything that James says but if that doesn’t work you may wish to consider factoring your invoices which will provide you with 80% of the invoice value immediately with the balance (less charges) paid when the customer has paid the account.
Again it may be possible to "lose" the charges in your pricing.
Ian Johnston - Factoring Solutions UK Ltd --- Independent Factoring Broker for growing SMEs --- Discover my free factoring negotiation service that tailors solutions and protects your UK business. --- Call me today on 01827 707 680
Get them to pay some money up front. I always ask for a payment at the start and end of the project. If it is a large project then get staged payments. 90% of companies are happy to do this some have even paid 100% up front. what you will tend to find is the ones that are not happy with this arrangement are the ones that generally cause the problems. once they have committed some money to the project then they should see it through to the end. go for at least 30% its easy once you explain that you have to do it as it is good cashflow management. Some of our design projects have been going 3 months. Better to lose a job because they wont work on your terms than go bust because your having problems getting paid. Chasing debts can be soul destroying and they cost you even more in wasted time and energy so factoring is certainly worth considering.
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This is a problem that plagues most small businesses. I have found that the legal route through the small claims court is a non-starter, I have tried this route twice and on each occasion the accused party claimed at court that there was outstanding work to be completed and therefore would not settle the invoice. This outstanding work was only presented to me at the court, the accused magically produced emails and letters to support there story! I have tried various methods, factoring does solve the cash flow, but be careful of the charges. Money up front is a nice idea, but not always an easy option when tendering for work and when it is a regular client this is almost impossible. To be honest the only thing that I have found that works is polite and very very regular contact with the client or best the accounts department to remind them, keep it calm, keep to the facts (they don’t want to hear about how you cant afford shoes for your children!) and just keep asking. Being a polite pain in the *** works for me.
Cube3 - Creative Product Design
I found that getting your customer to agree to your payment terms in writing before you do any work is a very good idea (make sure the payment terms are quoted on this document, and that this letter is signed by somebody who can actually agree to these terms ).
Also, try to speak to your customer’s accounts dept before the invoice is actually due, for example, just say to them you are calling to make sure the invoice has been approved or to make sure they don’t need a copy…this does work as it makes pressure on the customer and anticipates any problems you would have found out only when it was time to be paid.
There is also a website dedicated to this: http://www.payontime.co.uk/
Have a look at it and good luck.
It is always a good idea to chase up before it’s due to make sure there are no problems and that it will be paid on time, then any queries they have can be dealt with so that it does get paid when it’s due.
Darren DCI - Outsourced Credit Control www.debtchase.com
There’s a company called http://www.60days.com , set up for the SME community to help inform of late payers.
Their launch press release is at http://www.pressdispensary.co.uk/search.cgi?id=361
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