Frequently Asked Questions

What is the most effective way of chasing invoices?
If you send out large numbers of invoices and are struggling to follow them all up, sort your customers by overdue amount and follow up the largest amounts first thereby making most effective use of your time. Apply the 80:20 rule. You’ll see that 20% of your customers are responsible for 80% of your due amounts, so give these customers 80% of your attention. Try and automate the remaining 20% as much as possible by utilising automated letter / e-mail / statement facilities. Most sales ledger systems are equipped for this and if yours is not, there are cost effective options available.

How do I prevent the conversation getting a negative feel when I chase my customers for overdue invoices?
The key to keeping conversations positive is a pro-active approach. If you first contact your customer when an invoice has fallen due the conversation quickly turns into a defensive one. “Why haven’t you paid our invoice...”. Instead ring your customer a week after you have issued them with an invoice to verify they have received it in good order and there are no queries. Then give them another call a week before the invoice falls due to check if it has been placed on the payment run and check the details of the payment. As these conversations can be very friendly (nobody has ‘not done’ anything yet) everything is a lot more constructive and hopefully the vast majority of payments will come in as promised, therefore preventing the chase call from happening in the first place.

When I should charge interest on late payments?
First of all, you should have details of costs and interest for late payment in your terms and conditions of sale because this will make it clear to your customers that this is something you take seriously. For commercial debts the maximum percentage you can claim for is set at eight per cent above the Bank of England ‘reference’ rate at any given time under ‘The Late Payment of Commercial Debts Regulations (2002)’. You can only claim the amount mentioned in your terms and conditions state if that is a lower interest rate than the Late Payment Legislation. Make sure your terms are in line with the Legislation. If you don’t have late payment clauses in your terms and conditions, or have no formal terms and conditions, you can still rely on the Late Payment Legislation and charge collection fee and interest. You are certainly entitled to charge late payment interest, but a lot of companies are afraid this will drive customers away. The key here is to communicate this clearly to your customers from the start so that there will be no surprises.

How long after issuing invoices can they still be collected?
First of all it is important to have a timely and pro-active process for chasing up invoices. If you’re not successful in collecting monies that are due to you, take legal action. This should be a timely extension of your standard collection process. Legally you can chase invoices for 6 years (this is referred to as the statute of limitation) but the longer you leave it the more difficult it will get.

I am not really comfortable chasing customers for payment, have you got any good tips?
There are number of things that will help you to overcome this. Start by preparing for each call. Make sure you have your notes on the previous conversation(s) and the current status of the account you’re chasing. Before you pick up the phone make sure you know what your goal is for the conversation e.g. to obtain a payment promise. The final aspect is to make sure you keep control of the conversation and guide it toward your goal. Extract the information you need by asking open questions; when, how, who etc. If you keep control of the conversation you will feel a lot more comfortable.

We recently had a large bad debt experience. So far we haven’t really credit checked our new customers, but we now see the need to do so. How should we go about this?
There are several quality credit information providers in the market. Prices do differ and some have their particular specialities e.g. non-limited company information or overseas businesses so do shop around. Furthermore it is important to realise it’s not just new customers that need to be credit checked, but equally as important to check existing customers regularly. It is seldom a new customer that gives you trouble – typically it will be an existing customer whose circumstances have changed. The frequency with which to plan your checks depends on the customer’s circumstances, markets, locality etc. Finally, credit information has its limitations so try and use other sources of information as well.

We have been exporting our goods for some time and up to now we have insured our overseas trade. This is becoming increasingly expensive and I am looking for alternatives. Can you help?
You are correct about the high cost of overseas credit insurance. The best alternative is to employ (or gain access to) foreign language speakers that can approach your customers in their own language. This will greatly improve collection performance and risk management and will enable you to pick and choose where you use credit insurance, rather than using it as a default for all overseas sales. Combine that with obtaining improved credit risk information and you should have everything under control.