Unpaid Invoices – Whether you are just starting or have been successfully running a business for some time, you should be aware that some clients differ from others when it comes to payments. There are times when clients will delay payments for various reasons or not pay at all in the case of insolvency.
Unpaid payments can cause cash flow disruptions. Leading to a number of risks that can impact the overall stability of the entire company. From creating problems with taxes, wages, paying suppliers and other costs, unpaid invoices is one of the worst things that can happen to any business.
But don’t worry! There are multiple practical measures you can take. To ensure awareness of the risk of non-payment by your clients and minimise it. Starting with having a robust contract and understanding your rights and obligations in relation to unpaid invoices, termination of contracts and seeking legal advice.
These are some valid key steps for businesses to take when dealing with clients with financial difficulties and non-payment.
How to identify clients with financial problems?
The earlier you find out which clients could cause you financial trouble, the faster you can reduce non-payment risk. Here are some early signs to look out for:
- Changes in payment patterns
- Broken promises and excuses
- Being late making payments two or three times in a row
- Not returning calls and avoiding communication altogether
- Requests in payment extension
- Requesting an extension to their credit limit
When a client starts showing any of these signs, the best thing to do first is to talk directly and openly with them. Find out the reasons for their changed behaviour. And the trouble you can get yourself into if you do not react on time. Finally, if you and your client cannot come to an agreement, remember that credit controllers can handle the matter more effectively.
Contact the client
In most cases, unpaid invoices arise as a result of miscommunication. The invoice could be sent for processing to the wrong person. Or sometimes the client is unaware the payment is delayed, or they could disagree with it. Therefore, it’s important to get in touch with your client and speak to them directly to resolve any issues.
Unpaid invoices and late payment fees
It’s important to discuss late payment scenarios with your client from the outset and establish clear rules of what should happen in case of delayed or unpaid invoices. Under the Late Payment of Commercial Debts (Interest) Act 1998, “If an agreement is silent on the level of interest a supplier can charge on late payments, the Act provides for interest at 8% above the Bank of England base rate.”
To avoid unpaid invoices or their delay. Set a late-fee policy in your contract and include a reminder on each invoice. This reminder is a good incentive for clients to pay on time and prevent them from being late in the future. However, you have to be careful when charging a late fee. If the client who is late for payment is a good client with whom you’ve had a successful long-term working relationship, you could try to understand their position and get paid without penalties for late payment. This could help maintain a good relationship in the future.
Customer due diligence
Whether you’re a small business or a large corporation. Before entering into a business relationship with a new client, you should carry out client due diligence (CDD). By doing so, you are collecting valuable information on your potential clients. From financial reports and audits to risk assessment and the history of the client’s financial performance, to help you find out whether this new client is suffering any financial difficulties.
Besides carrying out due diligence before getting into business with a new client. It’s important to continue with routine checks on all clients every now and then to ensure there are no changes and new circumstances to deal with.
Have a robust contract
Having a robust contract or set of terms & conditions will help you navigate non-payers more easily. Especially if you have to go down the enforcement route. Your payment terms should be clearly outlined, including due dates and accepted payment methods, to make it as easy as possible for your clients to pay.
Consider adding a retention of title clause, too, to ensure you are still the owner of the goods until they are paid for. This is particularly important in situations where insolvency occurs. However, retention of title clauses should be carefully drafted in order to be effective.
Termination rights
As a last resort, you can terminate the contract if payment is not made on time. Before you take such action, make sure to carefully read the termination clauses of your contract. Ensure your termination provisions allow you to retain the right to terminate if your client’s financial situation declines or you believe insolvency is on the cards. Some termination clauses contain the right to terminate only when insolvency has already occurred.
Conclusion
If, despite all of the measures above, your invoices remain unpaid, we can recommend the best plan of action is to legally recover the debts you are owed. If you don’t have a contract or terms & conditions in place that you feel sufficiently protects you we can help. This is one of the best forms of defense against non-payers. Accessing our services couldn’t be easier, we work remotely and all of our meetings are conducted virtually so don’t hesitate to get in touch.