Not being paid on time is no small matter for small businesses. So this guide will help you to handle the immediate priorities of getting what's owed to you paid.
It contains the key template chaser letters, templates to agree an extension of time to pay the debt, to settle the debt and/or to reject a debt settlement proposal. You'll also find a short agreement template to briefly record the settlement you reach, or a deed that helps you to vary the original debt and terms of repayment.... plenty of options.
Oh, and of course finally, there's a template if you decide to take things further than all of that and involve the courts in (the potentially costly step of) helping you to enforce your rights.
For help maximising your chances of preventing this from happening again, make sure you have robust contractual terms in place with your customer - business or consumer.
If you need help putting these in place, or checking how robust your existing ones are, Farillio's smart solution will help you find the right terms and conditions template for you and carefully guide you through creating it yourself.
Or you can use one of our more bespoke contract templates for those bigger, higher value and more actively negotiated relationships.
All the key background for what to consider and lock down in your terms and conditions is also summarised in our guides on what to include in your terms and conditions when you're selling to consumers, and what to include when you're selling to other businesses.
Like most of our 'problems along the way' guides, we’ve put this guide together on the basis that most businesses want to preserve good sales relationships, even if something goes wrong with a customer on one occasion. But, covered here too, you’ll also find the more rigorous tactics that are generally most appropriate to enduring and/or substantial bad payers (when other options really aren’t suitable or you’ve already tried them).
By the way, if you're the recipient of an accusation that you owe money, you should use our response template series, starting with the first reply disputing you owe money to another business.
You can find this and the all the other 'responding' templates in our guide on how to handle a complaint that you've not paid someone on time.
Before you start chasing...
Before you go any further, be comfortable that your debtor is financially robust.
You can generally run these sorts of checks for free or only a small fee with providers like Experian and Equifax and these will tell you upfront whether it is worth pursuing the debt.
There is no point spending time and money chasing down a debt that is never likely to be paid.
Our friendly legal partners at Wilkes and Wright, Johnston & Mackenzie (WJM) can give you a robust steer on your recovery options, and the sensible next steps they’d recommend for you.
Template Letter 1 - my invoice is overdue, pay me promptly asap please
As careful as you may be with your trading terms and when giving out credit, sometimes a customer just doesn’t pay on time. As a small business, cash flow is of essential importance-one unpaid invoice from a customer can mean your suppliers don’t get paid either.
This is the firm, but polite tenor of the first letter that our expert partners at Wilkes and WJM recommend you send.
You can use this letter at the start of any correspondence with another business - or a consumer - that owes you money.
You'll see that the letter gives you the ability to attach a copy of the outstanding invoice, so there can be no doubt about what you are writing about. Alternatively, or additionally, you can attach what's called a statement of account (see our template for this below - or select it from the menu on your left.
You should set a specific time-frame for a reply, rather than simply requiringe payment as soon as possible.
There is also optional wording in the template concerning your right to charge late payment interest that you can use where you are chasing for payment from another business (not consumers) - and where you have the right to charge this because your contract gives you this right.
What else can you do at this stage?
If a payment is late, remember to follow through with the rights contained in your late-payment terms and conditions (a good set of terms and conditions or contract terms should contain these rights, for your protection). If you don't charge late-payment interest (or point to your right to enforce any other penalties you have detailed in your terms and conditions), those protective terms may lose their authority - which, as a result, could make any future invoices you send seem less of a priority to customers. You need avoid training your customers in bad habits!
We've set out some handy info on how to calculate late payment interest in a separate Farillio guide. You should make sure your contract gives you the right to charge it, but you cannot just pick any figure for interest – it must be reasonable and proportionate to the nature and age of the debt (otherwise, if you pick an excessively high interest rate, the court could strike it down as being a ‘penalty’ clause and therefore unenforceable).
Revise your credit allowances (if you offer them) for frequently late payers. Just remember to add a clause in your terms and conditions that’ll allow you to easily do this. Our standard terms and conditions templates all contain this optional wording.
Regularly check up on invoice and payment statuses. Don’t forget to spend some time each month to go through your records of who has and hasn’t paid you - and then make sure you chase any late payments promptly. Some accountancy software now contains alerts to let you know when an invoice is overdue.
For a quick and friendly expert view on your position and your prospects of success in recovering this debt at any stage, just select our speak to a lawyer feature and we’ll rapidly match you with the right expert to get you the help you need.
Template Letter 2 - the invoice is still unpaid and I'm insisting on my right to be paid asap
You should use this letter after having sent our first letter of complaint about money owed to you by another business. You can also use it to chase overdue payment from a consumer, although you may prefer to soften some of the language a little.
The same advice that Wilkes and WJM shared for the first letter also applies here. If you're chasing payment from another business, make sure you enforce your right to charge late payment interest - you'll need to reflect the difference in that calculation now, given the time that has passed - as well as restate any other late payment rights that you may have in your contract terms.
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