Consider altering your payment terms
Have you considered requiring payment upfront from your customers? Although some businesses may prefer not to do business this way, by requiring payment upfront, businesses significantly reduce the amount of admin involved in ensuring that payments have been made on time, and chasing those which have not. Granted, this approach may not be suitable for businesses where the scope of work isn’t wholly clear at the start of the working relationship. However, this is the most significant step you can take to reducing non-payment by customers – eradicating the possibility of it, by changing your payment processes.Communicating with customers
Although your payment terms may be included within your terms and conditions, there is often no substitute for ensuring that you are clear in your communications with your customers. Be extremely clear at the start of the working relationship as to how billing works, and follow this up with an email. It is always more effective to set expectations at the start. In addition, if it becomes clear that your scope of work is likely to go over an estimated price (or a price you know the customer is expecting), be sure to communicate this to your customer as soon as you become aware of this. Being upfront and open with your customers will result in a more open dialogue, which means the customer is less likely to default on paying your invoice.Be very clear in your terms and conditions
Your terms and conditions set the rules of your relationship with your customer. If your terms and conditions are not clear as to how invoicing works (in terms of the method of invoicing and when payment is due), the customer has an argument for not making payment. It is a worthwhile investment to have your terms and conditions reviewed by a solicitor to ensure that they convey the payment terms you want to enforce. Too often, terms and conditions do not provide for a business being able to charge interest when payment is not made on time. This restricts your options when dealing with a non-paying customer. Be sure to include a clause in your terms and conditions that allows you to charge interest, at a market standard rate, in the event that your customer fails to make timely payment. It is also highly advisable to include your key terms, including payment terms, on your invoice, and to draw your customer’s attention to the payment terms when sending the invoice to them.Implement a follow-up system
From a practical perspective, it is crucial that you have in place a system for monitoring payment of invoices. When an invoice becomes overdue, a member of staff should have responsibility for following up with this customer. It is also important that your business has a defined process for dealing with late payments. An example of such an approach would be:- A gentle reminder email to pay as soon as possible
- A strongly worded email requiring payment immediately
- An email stating that you will take further action if payment is not made immediately
Conclusion
The most important thing to remember is that, while these methods will not eradicate this completely, communication, clarity and clear procedures will go some way to reducing the issue of non-paying customers in your business.
The author of this blog post is Barbara Jamieson. Barbara Jamieson is qualified in Scotland, New York and California, and has worked at top Scottish law firms Maclay Murray and Spens LLP and Brodies LLP. Barbara also spent three years working in-house at investment management firm Martin Currie, advising on financial services and commercial contracts.
In closing
Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.
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