Unpaid invoice? How to have THAT conversation with your client
By Nicki ChoMar 20184 min read
Accountancy firms might spend their days advising clients on their finances, but even they are aren't immune from the problem of late payments. The average professional service firm is owed £54k in outstanding payments, according to new research by data specialists Dun & Bradstreet.
Having a challenging conversation with your client about money isn't most people's idea of fun, but most small firm leaders will need to do it at some point. With that min mind. we've compiled some tips to help you chase your client’s unpaid invoice (without chasing your client away).
Start the conversation (early)
When chasing an unpaid invoice, it’s important to remember that payment is already late. So, don’t procrastinate. By making contact with your client as soon as the invoice becomes overdue, your firm may be able to close the payment gap by presenting more flexible payment options, such as changing the payment date or offering instalment payments through Direct Debit. Whilst alternative payment routes don’t guarantee payment, they do move the dial in the right direction.
Structure the conversation (clearly)
Often, a client who is trying to delay payment will wait until payment is due before advising you that they didn’t receive your invoice.
1-3 days late
Your firm has delivered a service, your client hasn’t paid for it and all you can hear are crickets. So, it’s easy to think that non-payment is intentional, but it may not be. Genuine oversights happen all the time, so give your client the benefit of the doubt (especially first-time offenders).
Once the invoice payment deadline has passed, a junior staff member from your Accounts department should give your client a gentle nudge by sending a firm – but friendly – email with a copy of the invoice attached. The email should say that payment is overdue and your client must arrange payment as soon as possible or contact your firm if they’re in financial difficulty. More often than not, a subtle reminder is all that’s needed to spur an otherwise motionless client into action.
7 days late
If payment still hasn’t been made seven days after an invoice falls due, it’s time to send a follow-up email stating that the invoice is still outstanding and payment is required within, say, 14 days to avoid escalation.
The email should also state that, under the Late Payment of Commercial Debts (Interest) Act 1998, your firm reserves the right to claim interest, compensation and the “reasonable costs” of collecting the debt.
21 days late
A client can easily ignore your firm’s emails, but it’s much more difficult to dismiss someone on the phone.
At the 21-day stage, if your client still isn’t playing ball and your invoice continues to gather dust, you may want to escalate the matter by enlisting the help of a senior staff member to chase payment over the phone.
Before making the call, prepare a list of potential excuses for non-payment and outline responses to them. The caller should:
State the purpose of the call clearly, directly and early on;
Ask your client why payment hasn’t been made; and
Listen attentively and respond firmly, politely and empathetically.
When trying to preserve a client relationship, going to court is always a matter of last resort. If your client is reliable in the payment department, exercise your discretion to allow them more time to pay. But if your client is a serial late-payer, which is costing you time (and money) to chase, stress that the matter is now urgent and payment is required immediately to prevent legal action.
30+ days late
If your client hasn’t made payment (or meaningful contact) within 30 days of the invoice becoming due, it may be time to issue a letter before action (LBA), or to pass over the matter to a debt collection agency.
An LBA gives your client formal notice that legal action is imminent. It’s an effective legal document, which typically results in payment being made without the need for your firm to ever set foot in court.
If an LBA doesn’t trigger payment (typically, within 30 days) then legal proceedings may be necessary, which is a clear sign that your relationship has irretrievably broken down.
Suggest automating payments (completely)
Sometimes, companies end up writing off unpaid invoices (particularly those of well-intentioned clients) because they weren’t effective payment-chasers. But the reality is that your firm is in the business of accountancy, not debt collection!
To ensure that your firm’s invoices are paid on time – every time – you can also choose to automate the payment process by suggesting your clients pay you by Direct Debit. With Direct Debit, your firm can stop chasing unpaid invoices and start chasing new business.