Whatever the size of your business, your cash flow’s health is likely dependent on whether invoices are paid on time; ideally, before your expenses come out.
While sometimes, circumstances can conspire against a client and render them unable to pay, any delays not only risk souring relationships between client and supplier but also raise suspicions about the solvency of that client.
So, what can you do if a client doesn’t pay when they’re supposed to?
Check your agreement or contract
Before you begin any work for a client, you should draw up a contract. This contract should ideally stipulate the timeframe in which the work is to be completed, and whether payment is in instalments or a lump sum. Once the job begins, you can refer to the contract if you’re unsure of any terms, including when and how you’re paid.
If a customer is late paying or refuses to part with their cash, you can reiterate the contract’s terms and demand they pay you.
If you notice a gap in your finances due to an unpaid invoice, the first thing you should do is reach out to the client. While it would be impatient to do it the day or hour after that payment was due, it’s essential to keep track of who owes you what and speak to them if they’re behind. A late payment might have just been an error or oversight on their side, but equally, it could be a sign of financial trouble. If the latter is the case, they may have informed you they’re undergoing an insolvency recovery or closure procedure.
Find a way to tide yourself over
One of the more irritating side effects of a late payment into your account is it can throw your cash flow into chaos, as the late payment might be required to cover an outgoing invoice.
If the delayed payment is one you rely on, you could explore several invoice finance options; where a third party lends your business money based on the value of the client’s unpaid invoice.
Pause the work
Depending on the terms of your agreement, it’s common to require a deposit to start work, or instalments for the duration. If a client misses these payments or refuses to pay, you can stop working until you’re paid. Similarly, if the job is complete and you haven’t been paid, you can hold off handing it over to the client before you’ve received the money.
Such action is often reserved for situations where attempts to contact the client have proved unsuccessful. Though it might sound malicious, it doesn’t make sense for a business to work on something it isn’t getting paid for. Even so, such action risks souring the relationship with both parties, and we’d only advise this after you’ve made contact on more than one occasion.
Take legal action
Once you’ve exhausted all other options without success, or you’ve not been paid for a completed job, you might have to take legal action if you want your money. Although most companies will do all they can to avoid having to issue judgements and court orders, if all negotiations fail to get you paid, legal action could be the only option left.
One of these options is a County Court Judgement (CCJ) stating the amount owed. These judgements will hurt the debtor’s credit rating if not repaid by the specified date. Alternatively, if the lenders hold a debenture over their client, they could call that in.
Many businesses rely on their incoming payments to stay afloat, and if a client pays late, it can have worrying repercussions for both parties. Before you take any action towards reclaiming what you’re owed, you should check any agreed terms between you and the client. If the client has missed a payment or is holding funds back, you can try sending a reminder in writing or speak with them over the phone. If you need the money immediately, you can apply for some short-term invoice finance to tide you over until more invoices are paid. In the meantime, you could stop working on the unpaying client’s order to minimise wasted time, and if all other options fail, you can pursue legal action to recover your money.