It’s an all too common scenario — you’ve issued an invoice, called to follow up payment, and sent email reminders. Cash is tight, but your customer still won’t pay.
In 2019, one in two small business owners reported that they had to chase 40 per cent of their invoices. On average, more than $20,000 was owing to each of them. The number of businesses owed over $100,000 stood at 14 per cent — that’s one in every seven businesses.
The coronavirus crisis has seen these late payment times increase even further. In fact late payment delays for small businesses have become a critical issue as the coronavirus crisis continues. East & Partners research commissioned by Scottish Pacific Index found SMEs with annual revenue of A$1-10 million have been hardest hit by delays, waiting up to 66 ‘debtor days’ on average. This puts an incredible amount of pressure on the nation’s small business owners. Maintaining positive cash flow is key to survival so ensuring you get paid for services rendered is vital.
While debt recovery can seem daunting, what some small business owners may not realise is that it doesn’t necessarily mean going to court.
Emma George, Practice Leader in the Disputes and Litigation team at LegalVision, a commercial law firm that supports small businesses through online and fixed-fee legal services, explained three key steps small business owners should follow when looking to chase a payment.
Resend the invoice
This may sound like a no-brainer, but following up via email or phone is sometimes all that is needed to remind a forgetful debtor that an invoice is in their payment pile.
Send a letter of demand
Sending a letter of demand, drafted by a lawyer, signals you’re serious about chasing the debt. The letter should set out the deadline for payment as well as any course of action you’re willing to pursue afterwards.
Take your matter to court
Depending on how responsive and cooperative the debtor is, you have several options including taking your debtor to court.
Although going to court can sound intimidating, it doesn’t have to be. Some states have a small claims division for you to go through the process yourself. And throughout the process, both sides will try to settle the matter out of court to save time and money.
But having a lawyer handle the issue can offer some peace of mind. On top of this, considering the personal nature of some business relations, a lawyer can help take some of the emotion out of proceedings and provide a more holistic outlook.
“It’s all about deploying the right resources, knowing what options you have, and how best to use them. If you’ve done the work or delivered the goods, you’re entitled to be paid,” Emma explained.
For those small businesses looking to make late payments a thing of the past, Emma’s advice is to streamline the invoicing process as much as possible.
“Getting some unambiguous terms and conditions, diarising reminders and automating your invoicing lays the groundwork for making sure your pay processes are organised.”
Your terms and conditions will become a part of the contract between you and the other party. It will set out what steps to take to resolve any dispute that arises about late payments, and you should attach a copy to each order form, quote and invoice.
LegalVision has assisted over 50,000 businesses since it was founded six years ago. Among these are many small business owners who Emma and her team have helped to chase payments.
“It gives me a sense of satisfaction when we do recover those debts. Our clients are cash flow dependent, and it doesn’t help when someone is being tardy in their payment or just wanting to be deliberately obstructive,” she said.
LegalVision publishes free resources to help small business owners navigate the legal aspects of both starting and running a business. There are now over 4,000 free legal articles, legal documents and guides available on their website, ranging in topic from advertising compliance to data and privacy to intellectual property protection.
Download their free debt recovery guide for small business.