What a business should consider when serving a late payment request

All businesses need to have a robust process for dealing with late payment requests. Unfortunately, they are a fact of life for businesses. However, there are steps you can take to help reduce your exposure to them. Here is a quick guide to what you need to know.

What is a late payment request?

Generally, the term ‘late payment request’ refers to a business reaching out to a customer regarding a late payment. Sometimes, customers reach out to businesses to request to be allowed to pay late. 

Reasons for late payment requests

The vast majority of late payment requests are caused by one of four main reasons. In order of likelihood, they are:

1. The customer forgets to pay

2. The customer has an administrative issue with the invoice

3. The customer can’t pay at that point

4. The customer is deliberately refusing to pay.

The first two reasons account for the vast majority of late payment requests. They are both fairly easy to address with preemptive measures. Making the time to organise these can save a lot of time (and frustration and money) later.

Preemptive measures to minimise late payment requests

There are three key, preemptive measures you can take to minimise late payment requests.

Know your customer

Any time you do work or send goods in advance of payment, you are effectively giving credit. Only do this up to a point where you are still comfortable. In some cases, it can make sense to protect yourself by taking payment in advance. This could be for the full amount or for a deposit.

If the customer is in a hurry, you could use PayTo to get immediate confirmation of payment. This can allow you to get started quickly but securely.

Put everything in writing and make sure it is clear

Before you start any job or provide any goods, make sure that your customer is 100% clear on the terms of the transaction. This could mean that you need to present those terms in different ways. For example, you could have a page with your full terms in detail. You could then supplement this with a basic summary of the key points.

This approach essentially covers both bases. The page with your full terms is essentially a legal document. Even if you simplify it as much as possible, it’s still likely to be dense (and dull) reading. It is also likely to be essential to protect your business. The summary document tells the customer what they actually need to know.

When you request payment, make sure that your invoice contains all the information your customer needs to verify it. If space is an issue, refer clients to your website. At a minimum, send them to the specific page with the information they need. If possible, direct them to a specific place on that page.

Use automated payment collection methods

Automated payment collection methods resolve the issue of customers forgetting to make payments. 

Much of the time, this isn’t due to a customer actually forgetting. It’s due to a customer having different priorities from you. In other words, it’s due to them putting other work ahead of the work required to sign off your invoice. 

It’s also due to everyday staffing issues such as staff absences, even planned ones. People who are covering jobs temporarily simply do not know the work as well as the people who do them regularly.

Dealing with a late payment request

There are two possible scenarios for late payment requests. The first is that the customer contacts you. The second is that you need to reach out to the customer. These scenarios require different approaches.

The customer contacts you

There are really only two reasons why a customer would contact you with a request for late payment. These are cash-flow issues and issues with your invoice. 

The former is the most common by far. In this situation, generally, the most practical option is to work with your customer. If you want to charge for changing their payment terms, make sure that you do so in a legal manner. 

Also, think about the potential impact on your overall reputation as a business. Remember, how you treat one customer could influence how you are perceived by others. Word does tend to get around, especially via the internet.

If the customer has issues with your invoice, again, it’s best to start with diplomacy and negotiation. If that doesn’t work, then it may be worth looking for alternative dispute resolution systems (e.g. mediators or arbitrators). This can be a lot more economical than going to court.

You contact the customer

In general, it’s best to reach out initially by phone if you can (or videocall). This gives the approach a human touch. If this doesn’t work, you can move on to email.

How to write an email for a late payment request

The standard process for late payment request emails is as follows:

1. Friendly reminder

2. Formal reminder

3. Final request

At each stage, set out what you want the customer to do, by when and why. Also provide the customer with your contact details if they want to discuss the issue with you. At the final stage, inform your customer that you will move to debt collection proceedings if they continue to fail to pay.

You may find it useful to put a PayTo link in the emails. This gives customers an easy way to make payments immediately.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.