How to Tackle Late Payment Excuses

Chasing overdue invoices and listening to late payment excuses from customers is undoubtedly one of the most frustrating parts of business.

Did you know that three in five (58 %) SMEs across the UK are currently waiting on late payments from customers. Over 30% of invoices are not paid within the agreed terms

The consequences of late payment for business owners can be disastrous. A business needs regular cash-flow to function effectively, and if you’re spending valuable time chasing payments it’s taking you away from spending time on business growth.

In the debt collection and credit management industry we hear many different excuses daily from our clients’ customers. If your invoice is already overdue, your credit policy should dictate the process you need to take when recovering overdue invoices.

The secret to getting paid on time is to be aware of what the common excuses are and what you can do to combat them professionally.

Below we have outlined the top 10 late payment excuses so that you can know how to deal with them objectively going forwards.

1. The cheque is in the post

To avoid this situation, always ask your clients to send cheques with recorded delivery.

If a cheque has genuinely been sent ask your customer for the cheque number. Or you can tell your client to cancel the first cheque and send another, first class with recorded delivery. Alternatively ask for card payment or payment via bank transfer.

2. My customer has not paid me, or I’ll pay you when my customer pays

Some debtors believe they can withhold payment until their customers have paid them. Regardless of your client’s cashflow they should pay you in accordance with what you agreed.

Agree a deadline with your client and put it in writing. Advise them that you may charge them interest under the Late Payment of Commercial Debts (Interest) Act 1998.

If you’re customer really is wanting to pay you, you could request that they pay in agreed instalments until either the debt is settled in full or until they can pay in full.

3. The director, who authorises the payments is not in the office

In the absence of a boss, the business should not stop running. Request to speak to a senior member of staff. Perhaps offer an alternative payment method if you can. Make sure you ask when the boss is likely to return and remind them of the interest charges that you may add to the invoice for late payments.

4. We haven’t received the invoice

This next excuse is one of the most common reasons for late payment. This could be a genuine mistake, though in many cases it isn’t.

According to a recent survey, 44% of the excuses given to small businesses awaiting payment are relating to either receiving an invoice late, or not receiving one at all.

You can combat this late payment excuse before your invoice is ever overdue for payment. Simply contact your customer to check they received it (before it’s due) and confirm what date you can expect payment. This is not a chasing payment call, it is a rapport building call or also what’s known as a “proactive call”.

By doing this simple task, if your customer has not received your invoice, you can send them a copy before it ever becomes overdue for payment.

If however the invoice is already overdue, send your client a copy invoice right away and ask them to confirm receipt and the date you can expect payment.

5. The invoice is missing

Clients who are trying to delay payment will often wait until the due date to tell you their invoice has been lost. Try calling a couple of days before the payment is due to ensure they have it. This also gives you enough time to re-send an invoice over.

If invoices are frequently being misplaced by a specific customer, consider either:

• Adjusting their payment terms.
• Offering them an alternative way to pay you, or
• Carry out proactive calls/emails on those customers who frequently pay you late.

6. Technical error, or our systems are down

This could range from “the computer is down,” or “our accounts system is down” to “I am changing bank accounts,” or “I am getting a new cheque book” and so on.

With mobile banking there is no real technical excuse for not being able to provide payment by the due date. Remind your clients of the late payment interest charges you may add to their invoice and encourage them to use an alternative method of payment.

7. I can’t pay the bill

Ask your client when they will realistically be able to pay the invoice. Most clients who really do want to pay you will be clear and compromising.

Find out how much money they can pay and when? Ask for the remaining balance payment on a “said” date. Once again you should put this in writing.

This way you avoid being paid in instalments, settling the debt as quickly as possible in two payments.

8. Disappearing Clients

Unfortunately, some clients will never have intended to pay you in the first place. Here you a have a few options;

• For smaller payments, issue a Letter Before Action and then pursue your client through the small claims court.
• For larger sums consider hiring a debt collection specialist.

You are legally allowed to charge ‘statutory interest’ on late payments, (unless you have stated a different rate of interest in your contract). This is 8% plus the Bank of England base rate.

You can work out what interest you can add to your overdue invoice here.

9. I thought we had longer to pay!

Most payments are usually due in either 30 or 60 days. If you require a 30-day turnaround, it is possible some clients will insist they have different terms and therefore take longer to pay.

To cover yourself, discuss your payment terms before the point of sale and also clearly state your payment terms on your invoices.

If you do not state your payment terms on your invoice, or a date payment is due by, your invoice automatically defaults to 30 days.

10. Disputes/ Queries

It is common for customers to withhold payment on the grounds that an invoice is wrong, or because they are unhappy with the goods or services supplied. If they are trying to delay payment, they will often wait until the due date to inform you of their uncertainties.

After sending out the invoice to your customer call or email them to make sure there are no disputes or queries.

Should a query or dispute arise, request details of the dispute in writing and try to resolve it amicably before the invoice becomes overdue for payment.