Maintaining an open two-way communication where transparency and trust are at the forefront is vital when developing successful relationships with your customers and suppliers. However, what is the best course of action when a loyal customer is late paying an invoice? Is it worth losing their business and future sales to recover the debt? Or should you abandon the debt altogether? If you find yourself in this difficult situation, then this article will outline ways to maintain a healthy relationship with your debtor/s, before the situation requires you to walk away.
Strong business relationships often take time to develop. They need to be nurtured as they are an important investment in the success of your business. Investing in these long-lasting and positive connections with your stakeholders can foster improved productivity and growth for many companies, yet some may choose, and rightly so, to jeopardise this relationship to seek the money they are owed.
A client/supplier owes me money; how do I manage my relationship with them?
A key thing to remember is, if in the first instance your debtor has not paid their invoice, you don’t want the trust and confidence you have built with your long-standing customer to diminish suddenly by acting without thinking. By acting spontaneously, you could put your business in a vulnerable position, which could result in expensive court proceedings that may have been avoided.
On the other hand, you also don’t want to immediately write off the debt to protect your relationship. Some may also choose to abandon their debts because they believe it to be too costly to recover, timely, and a risky process. However, it is rarely a wise choice to write-off the debt.
In the fourth quarter of 2020, £779,997 of unpaid debt was written off each day
Steps you can take to maintain a healthy relationship before choosing to recover the debt;
1. Ensure you invoice on time
In 2021, taking into account UK SMEs being impacted by Covid-19 and other economic challenges, 51% of businesses have been affected by delays in receiving payments, and in 2019 it was reported that SMEs waited on average 23 days for late payments.
Invoicing should be a priority for any business, as it increases your chances of getting paid quickly. It also potentially means you’ll get paid before your client’s financial position changes.
As well as invoicing on time, you should also make sure your invoice is accurate and easy to understand, as queries equal a delay to payments.
If the client has exceeded the invoice due date, then make sure you follow up on the invoice immediately. Don’t be scared to call often to remind your client, however, remember to always remain polite.
2. Transparent communication, but remaining firm
Whilst your debtors should keep you in the loop regarding their finances – rather than sweeping it under the carpet – you should also be upfront, whilst remaining polite, and question why they are late paying.
You should demonstrate active listening, and bear in mind their reasons for paying late, to ensure that they still feel respected.
Once you are sure that your client is being honest with you, then make sure to get a commitment out of them (a firm date and payment amount) as to when they will repay the debt.
3. Ensure you have a debt recovery procedure in place
Make sure you have to hand key things in writing, such as a date by which the debt must be repaid, if you have agreed to this. Then you can turn your focus to how the issue can be fixed, rather than focusing on the problem.
You may choose to offer your debtor options to suit them when it comes to paying back the debt or the loan, for example;
- Can payments be spread across a period of time to make the outstanding debt more manageable?
- What options exist within your Terms and Conditions of Trade? Could you offer them extended terms at an agreed interest rate or an additional fee?
- Are there bigger factors at play that need to be taken into account?
When should I consider recovering the debt?
If attempts at trying to settle the debt have failed, your two other options are to abandon the debt or make use of a professional debt collection agency.
As mentioned previously, some view collecting the debt as risky, time-consuming, and expensive.
Although unpaid business debt doubled to more than £8.6 billion in 2021, and £4.3 billion worth of invoices were written off, rarely is writing off a debt a good option.
There are new services in the market now, such as Escalate, which are transforming the way businesses manage disputes. These services manage commercial disputes with a fresh new approach that focuses on your business’s cash flow, which could save you money, time, and hassle.
This blog was written by Matt Howard who is an Insolvency and Recovery Partner at Price Bailey. Price Bailey are a partner firm with Escalate. You can read more about Escalate here. If you are a business that is owed money and would like advice or support on the appropriate steps to take or you are interested in the services Escalate provide, then you can contact us using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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