Customer Not Paying an Invoice? Here Are 8 Steps You Can Take

The UK economy continues to be turbulent due to the Covid-19 pandemic.

For example, the Bank of England’s Financial Stability Report recently stated that insolvencies are likely to increase as temporary bans on winding-up petitions end in September.

As this and other government support measures come to an end, many companies will experience cash flow pressure.

Business owners should therefore be prepared for some customers to not pay their invoices on time.

In this article, we have outlined several steps to take when clients do not pay their invoices on time. However, the best course of action is to prevent this problem in the first place.

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Be Proactive

The best course of action is to implement measures to prevent non-payment. Simply put, this involves getting credit control procedures right before any issues can occur.    

Pre-screen customers for financial health

One of the most important steps is to avoid working with customers that pose a credit risk in the first place.

This means assessing potential customers for financial health before your sales and marketing team approaches them.

You can either conduct these checks yourself or use a tool like Red Flag Alert. We’ll go into more detail about our detailed health ratings later in this article.

Ensure all costs and payment terms are clear

The best way to ensure you get paid on time is to make sure payment expectations are clear.

Before a project begins, this involves outlining the estimated costs and taking time to answer any of the client’s questions upfront.  

This will provide clarity on when the client should pay their invoice or what the full amount is.

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Ask for the payment upfront

A sure way of avoiding an unpaid invoice is to ask customers for full payment before a project begins.

However, some customers may be hesitant to pay before receiving any work, especially if your business is new.  

In this instance, ask the client to make a deposit. This demonstrates that the client has the means to make the payment and provides an incentive for you to complete the service.

Establish good payment habits

To ensure that your clients pay you on time each month, put measures in place that establish good payment habits.

There are a few ways this can be done:

• Ensure that each invoice has a consistent format—this article provides detailed guidance on what you should include
• The details of the invoice should be laid out clearly with supporting notes and evidence of work completed
• Where possible, send the invoice at the same time every month. This will ensure the customer knows when to expect it

Not only do these habits ensure that your company sends out invoices on time, but they also help establish transparency if there are any issues with payment.  

The following example will show you what a basic invoice should look like:

Incentivise payment

Offering early payment discounts to clients is a delicate balance. This can be a viable tactic for repeat offenders, but it could prove a false economy if you end up losing money in the long run.

Here are some good ways to frame early payment discounts:

• Standardize the incentive across all invoices. For example, if the client pays within one week they are eligible for a 5% discount.
• Avoid confusion in your payment process. Accept all forms of payment and make sure these options are clearly outlined on the invoice.

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