Seeing money land in your bank account is one of the most satisfying sights as a small business owner. Especially in the early days, when you’re not making a huge amount of money, it’s confirmation that the products or services you’re offering are right for your target audience.
But as simple and as straightforward as most payments will be, it’s highly likely there’ll be a few that cause you problems – and generally speaking, they come in the form of unpaid invoices.
On the most basic of levels, an invoice is usually produced after products or services have been provided and gives the buyer a certain number of days to pay.
Now as great as this may be for the buyer, these two points alone can result in a huge number of issues for the seller – it’s not to say a buyer will maliciously not pay an invoice as they’ve already received their goods, but it’s unlikely to be at the top of their list and could so easily get forgotten about.
Therefore, when this happens, what should you do?
First things first – assuming you’ve waited the number of days stated on your invoice (usually 14, but sometimes 28), you need to contact the buyer directly. Whether it’s a phone call, an e-mail, a letter or in person, do whatever you can to make contact. As I said above, invoices are very rarely not paid because of anything malicious, but usually because they’ve been forgotten about.
But as a small business owner, it doesn’t matter why it hasn’t been paid – malicious or not – the money’s not in your bank account. However, rather than go in all guns blazing, a quick call could be all it takes to essentially wake the customer up, remind them their invoice needs paying and result in you having the money in your bank in what could be a matter of hours.
If the client does’t pay and you’ve nudged them a little harder, write to them formally and explain that if the invoice (giving as many details as possible) isn’t paid by x date, interest will be added every month until it is.
Something you’re legally obliged to do if you inform the client before hand, the amount of interest you can charge varies depending on where you are (not just in terms of countries, but towns and cities sometimes, too). Therefore, it’s strongly recommended to check local laws before moving forward with this aspect.
Should you still not have received any money after a respectable period, it could be a great idea to pay for a solicitor to send a letter. Although it will be an added expense, just seeing a solicitor’s name on formal headed paper is usually enough to prompt the customer into paying the invoice in full immediately, including any interest incurred.
If after this the invoice remains unpaid, you have two options – either write it off or follow the local legal procedures in your area, such as raising the issue with a Small Claims Court (in the UK, for example, matters where one person is owed up to £10,000 from another can be dealt with quickly, effectively and relatively informally this way).
Whilst the Small Claims Court option can be the most appealing, as it’s likely to result in you receiving the money you’re owed, you do have to consider writing the invoice off, as the simple fact is it may not be worth an amount that warrants more time being devoted to it.
However you decide to deal with unpaid invoices, the most important point to note is that at all times, you should let the customer know what you’re doing. This way, you can never be accused of not getting in touch or applying fees unnecessarily and will ultimately ensure you’ve done as much as you can to – hopefully – receive the money that’s rightfully yours.
This post was originally featured on October 29, 2013.