Businesses depend on good payment practices in order to survive. Especially small and medium enterprises are very vulnerable to late payments and can even be pushed to the brink of insolvency by them.
According to a survey by Atradius, a quarter of all B2B invoices issued by firms in the US, Mexico and Canada are paid after the deadline.
Some of the effects of late payment on affected businesses are financial instability, overdraft, staff wage difficulties, uncertainty and wasted time chasing outstanding payments instead of focusing on productivity and growth.
Businesses come up with many different excuses for late payment. Below, we list the most commonly used ones and how to deal with each.
1. We have cashflow problems
If your client claims that they are experiencing a shortage of funds and can’t pay you on time, ask them when they expect to be able to pay. After they give you a date, ask them how much of the outstanding amount they are short of paying. Then tell them to pay you the amount they can afford right now and the rest at the date they mentioned before. This way, you will receive your payment in only two instalments instead of agreeing for it to be paid in many small instalments over a longer period of time.
Also, inform the client that you will be obliged to charge late payment penalties if they fail to settle the amount at the newly-agreed deadline.
2. We can’t pay you until we get paid
A popular excuse for late payment is that the clients are still waiting to be paid by their own clients and only after that will they be able to pay you.
You should not give in to this excuse, unless your contract stipulates that you will only get paid when they do. Otherwise, demand payment according to the deadline agreed upon in your contract. After all, you can’t even verify whether they are indeed still waiting for a payment or it is just an excuse not to pay.
An alternative way to deal with this is to ask for the name and contact details of their debtor and the expected date of payment. You can contact your client again the day after this date or ask them to set up a bank transfer now for that day and send you proof of it.
3. We haven’t received any invoice
This is one of the most common excuses for late payment. You can solve it by asking for their email address, resend the unpaid invoice and asking them to confirm the receipt.
A way to avoid this excuse altogether is by sending the invoice through an online invoicing tool such as invoicely instead of sending it by email. invoicely sends you notifications when your client receives the invoice, so they can’t claim they haven’t. You can also set up automatic payment reminders to be sent to the client before the deadline.
4. The invoice is incorrect
If the client claims that the invoice has errors, ask them what the errors are, amend the invoice as soon as possible and resend it.
Always make sure before sending an invoice that the amounts are right and that the client’s details, as well as your company’s details, are correct and there are no typing mistakes.
If the client is disputing one or some of the amounts in the invoice, ask them to pay the amounts that are not disputed while you investigate the matter. Also, make sure that all communication regarding the disputed issues takes place in writing.
5. We have a problem with your goods/ services
In this case you should immediately ask for more feedback. Get all the details regarding the issue in writing, then investigate and solve the issue as fast as possible. Ask for commitment on their part to pay the amount as soon as you have solved the problem.
6. We haven’t received the goods
This excuse is easy to deal with. You need to store proofs of delivery securely and if a client denies having received the wares, you can quickly send them the signed delivery documents electronically to avoid further delays.
E-signature tools such as eversign allow you to use in-person signing, where the client can sign to confirm the receipt of the goods on the spot, on any mobile device. These documents are then securely stored on your online account and can be easily retrieved at any time.
7. The invoice has already been paid
If the company claims to have paid the invoice, they must be able to provide proof of payment. Just ask for it.
8. The person responsible for payment is sick/on holiday
It’s a popular trick to get rid of creditors by saying that the person that should make the payment is not in the office. Make sure you ask who that person is and whether anybody is replacing them. It’s highly improbable that the company’s business will be put on hold until this individual comes back to the office.
Try asking to speak with a senior director if nobody else seems to be available. This way, they will see that you are really determined to fight for your rights.
If there is really no option but to wait for that person to return, ask them when you can expect the payment to be made and make sure they answer you in writing. Get back to them on that date if they still haven’t paid.
9. We are changing our bank
Moving the accounts to another bank can indeed render a business unable to pay its suppliers, but only for a couple of days. If the delay lasts for more than a few days, it’s probably just an excuse in order not to pay.
Depending on your previous experience and relationship with the late paying client, you can take steps like asking for proof that they are changing the bank or permission to contact the respective bank. You can also threaten to charge them interest and late payment fees for the amount owned in case of further payment delay.
10. The company has gone into administration
If the company has gone bankrupt, you need to seek confirmation and find out who the administrators are. You can then contact the administrators and provide them with proof that the bankrupt company owes you money.
If the company is simply being closed but not going bankrupt, you can take them to court if you believe they have enough assets to pay the debt.
These are the most common excuses used by companies to explain delayed payment. We hope that our tips will help you next time you have to deal with one of these situations.