For any company, ensuring that cash flow remains stable is perhaps the most important thing you must do to stay in business. However, as we all know, some customers do not pay their invoices at the agreed time and this disrupts every area of business life.

What can be done to ensure that such customers do pay on time and, if not, what recourse do you have?

Be aware of who pays you late regularly

Having an awareness of the customers who have a history of late payment is the first step to getting to grips with cash flow.

For persistent and perpetual late payers, you may take the decision to refuse to deal with this person at all in the future. For customers whose transactions make up a sizable and important part of your turnover, it’s much more difficult to take this course of action because turning away their orders may mean that your profitable business becomes a loss-making one.

There may be other customers who pay on time but only if you chase them for payment. Giving the customer the benefit of the doubt with an early call to ensure that they have your invoice is the first step. After all, mistakes can be made and you may wish to avoid alienating a good customer because something’s gone wrong at your end.

If you find yourself being drawn into long telephone conversations every time you ring your customer to chase payment, then combine your phone calls with timed emails. There are many online bookkeeping and accounting software packages (including Xero) which allow you to generate automatic emails to be sent at regular intervals you define until the invoices are paid.

Getting clients to pay faster

A recent survey by Xero showed that, if you offer a customer the ability to pay by BACS or by cheque, they pay in 38 days on average. If you add the ability to pay by credit or debit card to your invoice, payment is received in 19 days on average – half the time.

Services like PayPal and Stripe are often integrated into online bookkeeping and accounting packages. Check to see if your software has the facility to include a payment link on the invoice. All your clients then need to do is to click the link and pay you online.

What about a customer whose cash flow has been severely disrupted through a lost deal? You might consider making an arrangement such as a payment plan where your client can pay you in instalments. This means that your cash flow may not suffer quite as much. Better still, customers always remember the suppliers who stick with them during the tough times and, when their particular cash crisis is over, you may benefit as more business comes your way from them.

AWOPs (absent without paying)

What do you do if your customer has disappeared and you are unable to contact them? Many businesses will have come across this type of customer from time to time. Depending upon the amount owed, you may consider writing off the debt if the costs of employing a collection agency or pursuing your customer in the Small Claims Court are greater than the amount owed.

If you do decide to pursue your customer through the courts, then there is a process that you need to follow. Before taking any action, you should issue a seven day payment request and make it clear to the customer that you will be taking them to court and filing a claim against them for the amount due. If they pay up within seven days then this has had the desired effect.

If your customer has still not paid the debt and the amount is less than £10,000, you can submit a small claims form. You must send to the court your documentation requesting the payment within seven days along with the Court N1 form. The forms are available from HMCS and can be submitted online. In the event that the court rules in your favour then your customer will be required to pay what is owed plus the cost of the court fees and interest.

If your customer owes you more than £5,000, then you can consider issuing a Statutory Payment Demand.  This is a formal document that requires payment of the amount due within 21 days. If your customer fails to repay the full amount within the timescale then you have grounds to present a winding up petition to the court.

Be in control

Many businesses suffer greatly as a result of taking orders from customers who, for whatever reason, have not or cannot pay their invoices. There is no sure-fire way to sort out all cash flow issues related to non-payment or late payment of invoices because every customer is different. Organisation and persistence from this point on in claiming and receiving the money which is rightfully and legally yours is the most proactive and beneficial step to take.