Having previously laid out some tips for building watertight invoices, let’s detour a moment to an ideal world. There, following those tips would be enough to ensure timely payment of your invoices.
Alas in the real world that’s not the case. Late payment is a huge problem for UK small and medium-sized enterprises (SMEs), with recent research showing they collectively are owed £55bn in overdue invoices. There are two main reasons for this late payment epidemic. Number one, your customer genuinely intends to pay your invoice but honestly just forgets and, number two, your customer opportunistically pays late to enjoy the cushion of the cash in their bank account rather than voluntarily putting it in yours.
How do we solve this problem? If you can, try to get your customers to pay you by direct debit so that you can automatically take payment for your invoice when it’s due. GoCardless is a great solution here for SMEs. In the cases where you can’t get your customers to pay your invoices by direct debit, it’s about three words: polite persistence pays. Politely persistently chasing your customers to pay their invoices is the single most effective thing you can do to get those invoices paid on time. In the case of reason one customers, it reminds them that payment is due. In the case of reason two customers, it puts them in the position of having to justify the unjustifiable of why they are continuing not to pay your invoice.
One thing a lot of people worry about is alienating your customer and losing the relationship by chasing. You shouldn’t. Put yourself in your customer’s position. As long as you are always polite and never inflammatory, what justification do they have for taking issue with you for chasing? In eight years as an accountant and finance director, I never lost or damaged one customer relationship due to polite persistent chasing.
The secret to effective chasing
The secret to effective chasing is that there is no secret! Polite persistence really does pay. There are a number of valuable things you can do to maximise the impact of your chasing. Here are some tips on how to chase most effectively from my experience as a finance director and our experience in building Chaser.
Regularity: You should approach chasing like Goldilocks approaches porridge. You want to chase regularly so as to project competence to your customer that you’re on the ball and know what is due. At the same time, you don’t want to chase too regularly so as to risk your customer feeling harassed. Weekly chasing strikes the right balance.
Communication medium: Start with email. I’ve found from experience that approximately 80 per cent of invoices can be successfully collected through email chasing alone. That should be your first line of attack before progressing to telephone for the remaining 20 per cent.
Start early: Don’t wait until your invoice is overdue to start chasing. Sending a chaser a week before due date to check everything’s on track for payment can really help you get paid on time. One caveat to this. Where you’re selling on 14-day payment terms or less, sending a chaser before the due date is probably overkill as your invoice has only recently been sent out.
Escalation points: Think about who sends your chasers. One thing I’ve always found very effective is building escalation into your chasing once your invoice passes a certain amount of time overdue. Speak to your accountant or bookkeeper about whether they, as an external authority figure, would be willing to be this escalation sender. It can be really effective.
Customers with more than one invoice: You don’t want to be sending any more chasers to your customers than you need to. Make sure you chase all overdue invoices for a customer in one email or call so it as easy as possible for them to pay them all in one go.
Attaching a copy invoice to your chasers: Give your customer everything they need in order to pay you. By attaching a copy invoice to your chasers, you prevent delays from your customer requesting one in order to make payment.
When you do your chasing: The key thing to think about here is when is your chasing most likely to be effective. This is as close before, but definitely not after, your customer makes their payment runs as possible. Lots of businesses tend to make payment runs at the end of the week. I’ve found late morning or early afternoon on a Thursday is a great time to chase from this perspective.
That completes the list of tips for effective chasing. There’s no alchemy to it. Polite persistence really does pay! Please do put these tips into practice and it would be great to hear how you get on. If anyone has any questions about chasing, please do post them in the comments section below.
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