Unpaid invoices are one of the biggest problems facing SMEs up and down the UK. According to recent figures obtained by Natwest, over a quarter (27%) of British small and medium-sized businesses have admitted to being owed between £5,000 and £20,000 in unpaid invoices.
When payments are running late past the usual 30-day payment term window, it can be tempting to panic. To help you get what you’re owed, it’s crucial to know your rights, as well as financial solutions such as invoice finance that can help you bridge the gap between payments.
What is an unpaid invoice?
Every business relies on getting paid on time from their customers. An unpaid invoice is when a customer fails to pay their invoice after the payment deadline has passed. This is also known as a past-due invoice or an overdue invoice. In an earlier study, Time Finance found that SMEs are owed an average of £250k in late payments - showing how financially dangerous and frustrating overdue invoices can be.
When does a payment become late?
According to Government guidelines, you can claim interest and debt recovery costs on a late commercial payment if the business you’re dealing with is late. A payment must be made within 30 days for public authorities or 60 for business transactions - any later, and the invoice is officially classed as ‘late’.
If you haven’t agreed a payment date upfront, the law advises that a payment is late after:
● The customer gets the invoice
● The customer has received the goods or been provided the service
With one in three enterprises seeing late payments as one of their biggest threats to survival, knowing how - and when - to recover them is key to keeping sound business practices. As well as chasing invoices and seeking guidance, you can also utilise a financial solution with an external credit control function to secure funds in the meantime.
How to chase and manage unpaid invoices
There are several ways to chase unpaid invoices. Many businesses also use credit control software to manage invoices and automate follow-up processes so they are not left short. Below are some examples of ways to chase unpaid invoices from clients, following the send out of a late payment text or email:
Call the client
If you don’t get any response from your reminder of late payment, the next step is to call the client. Not only does this demonstrate you are taking the situation seriously, but it allows you to explain how the overdue payment is affecting your business.
On the phone, you can find out why payment has become delayed and discuss ways to resolve it, like paying the invoice in instalments. If the client agrees to make the payment, ensure you send a follow-up email to confirm what has been said on the phone.
Suspend retainer services
If you provide regular services to your client on a retainer contract, consider suspending these services while the invoice remains unpaid. This is an effective way to resolve unpaid invoices, especially if your service directly affects a client’s business.
Many companies also include a clause in their contract stating they reserve the right to suspend these services if the client doesn’t pay within a certain timeframe.
Send a final payment reminder
If you have exhausted every possible avenue for payment, sending a final payment remember politely notifies the client that you’re ready to take legal action. If you still don’t get a response, or the client doesn’t agree to make payment, you can move on to the next step.
Turning to the Prompt Payment Code (PPC)
After recognising the huge repercussions late payments have on SMEs, new measures have been introduced by the government. These aim to tackle late and unfair payment practices in both public and private sectors.
The Prompt Payment Code is a voluntary code of practice for companies of any size, as outlined by the Office of the Small Business Commissioner (OSBC) on behalf of the Department for Business and Trade (DBT). It was first established in December 2008, setting standards for payment practices between organisations of any size and their suppliers - before being strengthened in 2021.
Actions for private sector companies
The Code sets out the following standards for private-sector businesses:
● Pay suppliers on time and within agreed terms.
● Give clear guidance to suppliers on terms, dispute resolution and prompt notification of late payment.
● Support good practices throughout their supply chain by encouraging the adoption of the Prompt Payment Code.
● Companies that do not meet the requirements of the Prompt Payment Code may face investigation and removal from the Code.[LB1]
Using a credit controller to manage invoices
Some businesses employ a credit controller, a professional responsible for managing company accounts and chasing unpaid invoices. If you choose to use a disclosed invoice finance solution, you’ll likely be assigned a designated credit controller who will make contact with customers on your behalf.
There are many benefits of using a credit control professional to manage unpaid invoices, including:
- Specialist expertise: Credit controllers have specific knowledge and skills in negotiation and debt collection. They may also be knowledgeable about debt collection laws and regulations.
- Relationship management: Chasing unpaid invoices can be a delicate matter. Credit controllers can help maintain a positive relationship with your customers - while also getting results.
- Improve cash flow: Debt collection practices are a surefire way to improve your company’s cash flow. Credit controllers can handle a large volume of unpaid invoices at one time, freeing up time for other tasks.
How an Invoice Finance solution can help
Invoice Finance is a simple but effective way to gain a cash injection – without having to rely on the prompt payment of an invoice.
Sometimes referred to as ‘Invoice Factoring‘ or ‘Invoice Discounting‘, instead of waiting 30, 60 - or sometimes 90 - days for customers to pay an invoice, Invoice Finance bridges that gap by allowing businesses to access up to 90% of the value of their unpaid invoices.
Funds can be accessed within 24 hours of the invoice being raised, which can help relieve pressure from pending suppliers, HMRC, and even employees who need to be paid. At Time Finance, we offer two products that sit neatly underneath Invoice Finance itself.
Disclosed Invoice Finance
Disclosed Invoice Finance also includes a comprehensive credit control service. With Disclosed Invoice Finance, we’ll provide a designated credit controller who will send out monthly statements and make telephone contact with customers on your behalf, tailored to your exact requirements - making it a great solution for those who need a bit more support in managing their sales ledger.
Confidential invoice finance
On the other hand, Confidential Invoice Finance also offers businesses a similar cash injection - but instead of a dedicated credit controller, the chasing of invoices stays in-house. This is so customers are not aware of any external involvement, but still provide all the benefits of an invoice solution.
Alleviate Stress from Unpaid Invoices with Time Finance
When late payments are causing you stress and are actively impacting your business, knowing what’s available to you is crucial. To find out more about our Invoice Finance facilities, get in touch with our friendly team today.