Your options when an invoice becomes overdue

15/04/2022

Once an invoice becomes overdue, the pressure is on as, statistically, the likelihood of receiving the full amount decreases as invoices age.

In a recent article we looked at the key steps businesses should take straight away when faced with this scenario, from contacting the customer immediately and tackling disputes to adjusting cash flow forecasts.

But should the customer continue to resist or ignore your efforts, what options are you left with?

DIY

Particularly if you have a dedicated credit control team, it can be tempting to continue chasing the customer internally. The key benefit of doing this is that you will already have a good understanding of the circumstances surrounding the overdue payment – and potentially an existing relationship to nurture and utilise. It also keeps you in control, so you know what is happening.

The downside is that chasing customers for overdue debts can be a time-consuming process that absorbs valuable resource. Whilst this can come at the expense of other credit control priorities such as newer invoices – which may go the same way without close attention – it can also get in the way of your wider day-to-day commitments.

It’s therefore important to consider the reasons behind the missed payment, whether any progress is being made, and the impact that chasing the customer is having on you, your team and your business. If the opportunity cost is too great, you may wish to consider another route to recovering the money owed.

Consider, too, the expertise and track record that you and your team have in recovering overdue invoices. If you’re used to dealing with difficult customers but usually recover payment, you may be able to persevere with this approach (though take the time to examine why your customers regularly pay late and if improvements can be made). If not, or you’ve had to write invoices off in the past, it’s worth escalating.

Outsource to specialists

If you’re not making any progress in recovering the invoice or the time being invested into a particular customer is impacting your business, the next option to consider is outsourcing the debt’s recovery.

Specialist commercial debt collection agencies not only provide the resource to recover the debt, they also possess a great deal of expertise and will know which strategy to take to encourage your customer to pay. The involvement of a debt collection agency alone will often add significant weight to your collections efforts.

Debt collection agencies typically operate on a success-only basis, which means they charge in proportion to what they recover. Whilst it may seem a shame to effectively pay in order to receive the money you’re owed, their fee can be balanced against the resource that would otherwise be invested into continuing to chase the customer – and the potential of having to write off the invoice altogether.

You may also wish to charge the customer statutory late payment interest and compensation, which can also go towards (or potentially cover) the agency’s fee.

The cost of using a debt collection agency typically increases the older the debt becomes. So it often pays to instruct one early on in order to minimise costs – as well as the impact of the missed payment on your cash flow.

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Take the legal avenue

Whilst some customers will respond to the debt recovery techniques employed by your business or a commercial debt collection agency, others need an even firmer approach to persuade them to settle outstanding invoices. This is where legal proceedings can have a positive impact.

Often, a letter before action notifying the customer of your intent to commence legal proceedings should payment not be made is all that’s needed to encourage the customer to pay, or at least start a constructive dialogue. Where it’s not, a number of legal options exist, including the use of County Court Judgments.

Due to the time-consuming and sometimes costly nature of the legal route, this is often considered as a last resort by businesses. And more often than not, customer relationships will be damaged if this route is taken. But you must ask yourself if, going forward, you want a customer that consistently fails to pay on time.

There is still the risk that the legal action won’t result in payment, with no guarantee that you will get what you are owed by taking this route. So it is important to evaluate each individual debt and pick the course of action that stands the best chance of maximising its recovery.

The legal system can be complex and, with a lot of legal jargon to understand, can be off-putting for many businesses. By employing a reputable company with a proven track record to start the legal proceedings on your behalf, however, you will have the added benefit of experts that can offer sound, practical support.

If you have any overdue invoices you are concerned about, or you’d like to discuss the options available to your business, please contact our expert team of collections consultants. An award-winning and FCA-authorised debt collection and credit control agency, we have over 20 years’ experience of collecting overdue invoices on behalf of our clients whilst preserving their all-important customer relationships. Call 0800 9774848 or schedule a call back at a time that suits you.