Posted 1 year ago by Alison
Keeping on top of cash flow and ensuring invoices are paid in a timely manner is essential if a business is going to survive and thrive. However, there will be times when, for various reasons, invoices go unpaid for longer periods than expected. This has been a particular issue for many businesses in the past few months as companies attempt to manage the challenges associated with coronavirus.
As Nicola Holden, director at accountancy firm Holden Associates, explains: “Monitoring the cash flow within a business is always important and that is especially true in the current climate.
“The key to this is good bookkeeping aided by good bookkeeping software. It is the everyday bookkeeping duties of raising and sending sales invoices to customers, posting the purchase invoices, accounting for cash expenses, posting bank payments, recording customer and supplier payments, and bank reconciliations that will make the difference.”
Indeed, with many businesses facing financial uncertainty, having a robust method for invoicing and for managing unpaid invoices is crucial, and this is a process that should begin as soon as you start working with a client.
Once you’ve agreed to provide a product or service, it’s important to also establish your payment terms. Nicola Jones from My Accountant Online says: “I often tell clients one of the best ways to get paid quickly is to always make sure you agree your terms with a client or customer first and then to issue an invoice without delay.”
Peter Richardson, founder at AIM GB, goes a step further: “I regularly remind clients to check the company they are dealing with, before they agree a contract; run credit checks, search Companies House for directors and check if the directors have had other companies that have been dissolved.”
When it comes to setting payment terms, the standard approach tends to require invoices to be settled within 30 days, but it’s your choice. UK law also allows you to charge interest of 8% plus the Bank of England base rate on late payments for business-to-business transactions. You can also charge reasonable debt recovery costs, so make it clear in your terms and conditions if this is something you plan to do.
Once you have provided your goods or services, make sure you send an invoice within a reasonable time frame. This means the transaction is still fresh in the client’s mind and prompt payment is more likely.
As Jones adds: “Don’t leave issuing invoices for several days, send them immediately. If it’s not paid, chase it immediately as well. Ask the client why they’ve not paid and deal with all potential issues without delay. It’s where good software like AccountsPortal is invaluable – it deals with every aspect of invoicing very well indeed.”
Also make sure you include all the relevant information in your invoice so that the client doesn’t have to search for details such as bank account numbers or payment amounts.
While you may have a specific contact within a company, they may not be the person who actually approves the payment of invoices, so confirm who needs to be sent the invoice and copy them in. If you don’t do this, you’re relying on your contact to forward it on, and we all know how easy it is to forget to do that. Remember, at all times, the idea is to make payment as simple as possible for the client.
Once the payment date has passed, don’t feel embarrassed about contacting the client. The sooner you remind them of the outstanding payment, the sooner you’re likely to get paid. A polite reminder is all that’s needed at this stage and often is enough to prompt payment.
While it’s good to know the law is on your side when it comes to demanding payment, threatening to charge interest as soon as payment becomes overdue is not the best way to cement a relationship, particularly in the current situation; businesses have their own cashflow to think about so be considerate but keep communicating.
It’s also a good idea to have a consistent structure in place for escalating unpaid invoices to ensure nothing gets missed and all clients receive the same experience.
As mentioned, the best place to start is with a quick, friendly reminder email.
Overdue invoice: First reminder email template
Hi [Recipient’s first name]
I hope you are well.
I just wanted to drop you a quick note to remind you that [invoice reference number] is due for payment on [date due].
I would be really grateful if you could confirm that everything is on track for payment.
Best regards [Sender’s first name]
If that doesn’t work, keep in regular contact with the client. Keep emails friendly but push for confirmation that payment is imminent. Below are a couple of follow up email templates you can use to chase payment depending on how overdue the invoices are:
Overdue invoice: Second reminder email template
Hi [Recipient’s first name],
I hope you are well.
Just a reminder we have yet to receive payment for [invoice reference number] that was due for payment on [date due].
I would be grateful if you could confirm when we can expect to receive payment.
Best regards [Your first name]
Email template third reminder
Hi [Recipient’s first name],
Following on from my early emails, we have yet to receive payment of [amount owed on invoice] in respect of our invoice [invoice reference number] that was due for payment on [date due].
This invoice is now [number of days overdue] days overdue. Please could you let us know about when payment will be made as a matter of urgency.
Best regards [Sender’s first name]
If no payment is forthcoming and you do not receive a response from the client explaining the situation, you should then send a statement of accounts. A statement of accounts shows all the outstanding invoices a particular customer has with you and can be generated by your accounting software.
Although more formal, this email should still be friendly and polite in its tone.
At this point, you might also want to think about reprioritising your workload. If you still have outstanding work for the client, you should put it to the bottom of your to-do list.
Still no response? Pick up the phone. It’s a lot more difficult to avoid the issue once you have someone on the line, so try to get confirmation of when payment should be expected or if there are any issues you should be aware of. You may also choose to take a more formal approach and send a follow up reminder letter.
As Richardson says: “Remember to note down every telephone call with the customer/supplier and who you spoke to (date/time), and post letters 'signed for'. Keep all emails and check the received status. Create a detailed timeline for each case.”
To ensure your letter has the maximum impact, it’s important to include some key information. Start with the main points, namely the Invoice number and date, amount owing, details of any previous reminders, instructions for payment and your contact information.
As with the emails above, tailor your language depending on how overdue the invoice is. So, if the invoice is only a week or two late, be friendly and polite. The aim here is to maintain your relationship with your customer while also gently reminding them of their debt.
Once you hit the 30 days+ point, the focus moves to demonstrating the urgency of settling the invoice and encouraging quick payment. Maintain professionalism but don’t be afraid to highlight any negative impact delaying payment is having on your business. Offering alternative solutions such as payment plans may also be useful here.
Once an invoice is more than 90 days overdue you may want to think about implementing late fees or even handing the debt over to an external collection agency. At this point, keep any communication formal and factual.
Each time you communicate with your client be sure to include a copy of the invoice and links to online payment options.
Accounting software can be a valuable tool in the battle against unpaid invoices. Flagging up overdue accounts, quick and easy payment options and automated reminder emails can all encourage clients to pay without putting more pressure on your team to manually track each account.
Holden highlights a number of key functions in AccountsPortal that save time when it comes to invoicing: “AccountsPortal offers a third-party integration with Stripe. This means that your customers can choose to pay your invoice on a credit or debit card, allowing your customers another payment option. If your sales and purchase ledgers are up to date, you can see who owes you and how much and, just as importantly, who you owe. Statements to customers can be emailed at any time.
“The bank feed is a time-saving add-on providing a real-time picture of your bank account, allowing you to track the payments your customers make to you. This real-time picture also allows you to make your supplier payments with confidence. Keeping accounts information up to date is important but never a chore with AccountsPortal.”
David Thompson at Accountants Direct also highlights the value of an automated invoice chasing system: “Sending periodic reminders will improve client payment times,” he explains.
Hopefully by this point you at least know when payment will be made, even if it hasn’t yet been settled. However, if the client is still being evasive, remind them about your late payments terms and consider implementing these if there is still no response. Also be sure to withhold any products or services you were due to supply until the balance has been settled.
Richardson also suggests trying to negotiate a payment plan to settle over a few months and utilising free legal helplines that come with many insurance policies in order to get further advice and support.
He concludes: “Finally, plan for the unexpected, we do not know what next year will bring, so the company and the owners should have a few months’ worth of savings to see them through. If the business becomes unsustainable seek advice as soon as possible from an insolvency practitioner, don't leave it for another day.”