Won’t Pay or Can’t Pay?

People who won’t pay cause small business owners more hassle than any other issue.

Years ago, my husband and I owned a quick print business. I hadn’t realised how much chasing payment impacted my life until I overheard my daughter (6) and a friend playing shops:

“Now we’ll just close the shop and then I will ring all the people who haven’t paid.”

I had never talked to her about the problems of late payment or how common it was. She had just thought it was the way things were for businesses like ours. The Federation of Small Businesses Report on Late Payment  has some sobering statistics:

• A third of all payments to small businesses are late
• 61% of all payments from big businesses to small business are late
• 37% of small businesses run into cash flow problems because of this.
• The law says you can charge interest on late payments–but only 21% of businesses do.

The major source of litigation and conflict in small businesses is non-payment or late payment. Going to court may get you your money and probably lose your customer.  I will tell you about another way where the chances of getting your money AND keeping the business are much higher. Download my leaflet on how to Talk about Money with GRACE

Avoid Won’t Pay

First in my usual mission to make myself redundant, below are short tips on how to avoid the won’t pay scenario. 

• Be clear about terms and conditions in quotes. How much will they pay and when?
• Specify exactly what they are getting and when. If amendments are included, state how many. If not state it clearly.
• Deliver what you said you would and when.
• Check everything is okay, then invoice
• Make sure the invoice is correct and has an order number, correct name address etc.
• Send out a polite reminder just before due date.
• Follow up

For more detailed information on how to get invoices paid on time, read this article. As with so much else, it’s about clear communications.  

What you should do if they still won’t pay

Keep records of what action you have taken and when. In the olden paper days, I used to have a folder with tabs for each stage and notes. Now it would be easier to set reminders on your calendar or CRM system.

Stage 1  A week late

Don’t ignore it. The longer you leave the situation the worse it gets and the less likely you are to recover your money and keep the customer

Take a deep breath. Think of all the reasons a sane, kind person might have for not paying the bill. Keep your temper.

Phone. Assume they have a good reason for not paying–something like “Hi, I wanted to check that everything was okay with the last order.” If so, “I was worried that you hadn’t paid because there was a problem. Did you get the invoice?” This may be all that is needed. Send a duplicate invoice if needed.  “Would you tell me when to expect payment?” Clarify when they are going to pay and how. Ask for payment by BACS or card so everyone can track payments.

Stage 2 Promised to pay, but hasn’t turned up.

Again, be sure you are calm and in the right frame of mind before phoning.

Describe what you agreed and what has happened.

Give them a chance to explain (maybe they have sent it to the wrong account–or someone has paid it off the wrong invoice at your end). Here’s an example. “I’m a bit worried as you promised I would have the money by yesterday. I’ve checked my account and it hasn’t been paid in yet. Is there a problem?”

State the next stage/consequences. If they provide a reason, reply “I’m glad to hear that as I didn’t think you were the kind of person who would promise to pay and not keep their promise. I really need the payment as soon as possible. Would you be able to do it now while you remember–if you have your card handy?” Alternatively, you could follow up by saying “We have a policy of not processing any more orders until we receive payment for overdue invoices, and it would be a shame if we had to delay your orders.” Or “Please be sure to pay, because if we don’t get it within three days, I’ve been told to pass it on for further action.”

Stage 3 More delays

Send a formal email (make sure you get a read receipt) or letter stating

• details of case
  • when payment was due
  • when reminders were sent
  • any promises to pay.
• If you are prepared to accept payment in stages or part payment, offer this option.
• Give them a specified time (usually a week) to either pay or agree to mediation (they would have to pay half the costs of mediation).
• if you do not hear from them within 1 week, the next step will be to proceed with legal action. You may want to put down the potential costs of this. Remember to include interest etc. (Information on what you can claim)

Mediation or Legal action

You are expected to try mediation before going to court. Prices for this start at £50 per party  https://www.northernmediators.co.uk/fixed-price-scheme/  For more about mediation, ring Nancy Radford on 07980 920078.

If you go to mediation, you come to a decision between the two of you. The mediator acts as a facilitator and can help you come to an agreement. It can usually be arranged swiftly and there is little paperwork. Mediation is not suitable for all cases. Both parties need to be willing to try and trust each other. Mediation is more likely to maintain relationships with the customer. For example, it might be that there is some fault on your side. Or the customer wants to pay but doesn’t have the cash yet because someone hasn’t paid them. If you have no response, obviously mediation is not an option. Document that you have offered mediation and the response from the other party. If the other party has been unreasonable in refusing mediation this can count against them in court.

You don’t need a lawyer to go to small claims court if the amount is under £10,000. When they haven’t paid, that this would involve them in additional costs It is not a difficult process to go through, and often the threat of small claims court is enough.  More details on how to make a claim. To make a claim go to https://www.gov.uk/make-court-claim-for-money.

Finally, don’t fume or get angry if someone won’t pay. You may end up breaking the law or being taken to court for harassment. Be polite, be firm, be fair and record everything. And then learn from your experience. If you would like to discuss a particular case, Nancy is happy to offer a free exploratory call which might be all you need! Email help@nancyradford.com.