June 20, 2017
Debt recovery is a major concern for many small businesses. Make sure you understand how to deal with late payments and follow the right procedures to collect money owed to you.
You should make sure that all your business contracts, such as your Sale of Goods Agreement or Supply of Services Agreement, set out your payment terms in detail so there is no misunderstanding when it comes to cash collection.
If you are selling items, you should also clearly set out payment terms in a Purchase Order when you start to engage customers. Issue Invoices on time and keep track of all payment related documents as these will be critical when chasing payments.
Late Payment Letters
A late payment letter can be a useful and affordable way of chasing up overdue invoices by prompting a customer to pay the overdue amount. Use a First Payment Reminder Letter once the payment becomes overdue. Depending on the original agreement, you might be able to set a certain number of days before you start charging interest.
If the debt remains outstanding, you should send a Second Payment Reminder Letter at a time you consider reasonable, taking into account the number of days you have given the client to repay the debt.
If the debt remains unpaid, a Final Payment Reminder Letter will communicate that you are prepared to commence legal action to enforce the debt collection. This is sometimes called a “Letter before Action” and 14 days is normally the time period given to settle the invoice. At this stage, you might want to seek legal advice, though that may depend on the figure outstanding.
Accepting Payment in Instalments
If your customer does not dispute that money is owed and is willing to make arrangements for the debt to be repaid, you can consider a Letter Accepting Payments in Instalments. Such a letter allows the debtor to pay off the debt with regular fixed instalments.
- Sale of Goods Agreement
- Supply of Services Agreement
- Final Payment Reminder Letter
- Second Payment Reminder Letter
- First Payment Reminder Letter
- Purchase Order
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