Far too often I find myself advising clients that are chasing debts owed to them for goods sold or services provided. This is an unfortunate situation that none of us want to find ourselves in. Most times with small business it is not economical or financially viable to pursue these debts. Here are my top 5 tips to ensure you get paid:
1. Payment terms
Make sure you have valid payment terms, whether it is in an email quote, which the client accepts, a more formal document which is signed, or a tick box on a website. You need to make sure that there has been an agreement in writing about what will be provided, how much it will cost and when payment will be expected. This gives you legal standing to pursue action if you need it in the future and it is also the first step to making sure you get paid because it documents the agreement between you.
Consider whether accepting deposits or full payment upfront is possible in your line of business. It is often easier to get an upfront payment before delivering the final product or the goods, rather than spending time afterwards trying to pursue a debt. If you have not yet provided the services or the final product, you still have something that you can keep until payment is made.
Make sure that you invoice promptly. The longer you leave it, the greater the chance that the customer’s good experience with you, will reduce in their mind. When it’s a good experience, customers are more likely to pay efficiently. When a customer misses the payment deadline, you need to follow up promptly too. It helps you to show that you are enforcing the agreement and reminds the customer that this is an obligation that they agreed to.
4. Extension of time
If a customer requests more time to pay, you need to be careful about how you word your response. If you agree to a new date you have, in a legal sense, changed the due date for payment. This means there is no longer a debt because you have set a new date in the future which hasn’t yet been reached. If later on, you want to take legal action to pursue the debt, it won’t be a debt that arose from the first invoice or the first request to pay. Rather, the due date will have been extended and the debt will start on the new date for payment. Instead of agreeing to a new date, use language along the lines of ‘you will agree with the person not to take action if they pay on the new date’.
A separate tip for people that can’t avoid taking money when selling goods – so for example if you use goods on consignment – there is something that you should be aware of, which is called the Personal Properties and Securities Register. You can find more information out at on the register’s website. If you want to ensure that goods can be returned to you, if the person you have given them to has not yet paid you and then falls bankrupt or enters liquidation you have to have registered your interest in those goods on this register.
5. Letter of demand
Finally, my last tip is to have a good template letter of demand ready on hand, so that chasing debts isn’t difficult. A letter of demand should confirm the following elements:
- the terms that were agreed to
- what the agreement was
- confirm the date that payment was due
- confirm that payment is outstanding
- refer to any rights that you have – so for example that they cannot use the copyright, that you have a right to come and collect the goods
- seek payment immediately.
- include what your next step will be if payment is not paid by that date. For example, you will escalate it to your lawyer, or debt collector – whatever you choose to use.
These are my tips on how you can make sure you get paid – and good luck out there!