Sending invoices as a small business can feel like you’re dropping them into a void, while watching your savings diminish as you wait to be paid. According to a report by credit specialists Dun & Bradstreet, the average late payment time for businesses in Q1 2017 was 15.3 days late, and even higher for payments by big businesses to small businesses, 18.3 days late.
If you are owed money, here are five steps to get back in the black.
Take preventative measures
These types of clauses can come in very handy if you need to chase a debt.
It can be easy to lose track of what you’re owed. Take advantage of online tools to set reminders for when invoices are sent out and are due, and create a filing system for relevant correspondence. Documenting everything is essential in case you need to commence legal action.
Contact the debtor asap
Don’t delay in contacting the other party once your invoices are overdue. If you call them, make sure you always follow up in writing, setting out new deadlines for payment and anything else discussed or agreed to. Remember that invoices are often not paid on time because of oversight, not because of any ill intent – so ensure this communication is friendly, but clear.
Send a letter of demand
If your invoice remains unpaid, the next step is to send a letter of demand, where you can set a deadline for payment (7-14 days is good) and state that if it’s not paid on time you will commence legal proceedings to recover the money, and seek payment of interest and legal costs. If you want a letter of demand to pack more punch, you can ask a lawyer to send it for you.
Commencing proceedings…after careful consideration
If you’re in NSW and your debt is $10,000 or less you can bring a claim in the Small Claims Division of the NSW Local Court (there are similar courts and tribunals in other states). The Small Claims Division is informal and designed so that people can bring a claim themselves without legal representation – which is great for SMEs.
If your claim is more than $10,000 (in NSW), it’s best to get a lawyer to help you.
Things to consider before commencing proceedings:
Sean Melbourne and Christina Guo, Source Legal