They Won`t Pay the Invoice! (But This Can Help)

by Curtis McKenzie | Founder & Managing Director, New Frame KK |

A major challenge of managing a company, especially a small one, is cashflow. Adequate cashflow requires you getting paid on time as well as getting paid ALL the time. While most clients will pay what’s owed, some will try to avoid paying and hope the vendor will simply give up. Businesses suffer loss of productivity, stress, and hardship having to worry about collecting fees they have already earned in good faith.

A big part of cashflow management is getting paid on time. So what do you do when a client (big or small) hasn’t paid you by the invoice due date?

Here are 4 major steps that need to be part of your approach, though you will hopefully not need to use all of them:

It can feel uncomfortable collecting overdue invoices for fear of alienating the client and the expected confrontation that could occur. Despite these apprehensions, you need to have a standardized process for handling overdue payments.

It can feel uncomfortable collecting overdue invoices for fear of alienating the client and the expected confrontation that could occur. Despite these apprehensions, you need to have a standardized process for handling overdue payments.

  • Be proactive, send a reminder on payment due dates before the invoice expiry date. The best way to avoid overdue payments is of course to not have them occur in the first place. Sending a simple email with the title “Gentle reminder, payment is due this coming Friday….etc.” will likely reduce, but not completely eliminate, overdue payments. Any staff tasked with collection should be trained on how and why to do this as a company-wide standard.

If the due date has passed without payment, you’ll need to follow additional steps.

  • Notify that the payment is overdue immediately. The worst thing you can do is to let the payment go overdue for several weeks. Email is fine for the first notification or a short call to your client counterpart. During the call or email, itemize the exact invoice number, payment due date and amount. This makes it easier for the client to chase it down internally and shows you are organized with the collection process. If necessary, ask to speak to the accounts payable team, manager or person in charge. Do not strictly rely on emails, they are too easy to ignore.
  • Maintain professionalism by being calm, consistent, and firm. It is easy to get upset and imagine the worst when dealing with unpaid money, but it could be the payment was simply mishandled or misplaced. Give the client a chance to correct the matter. Set a new specific deadline of seven days later, get this in an email so you can refer to this in future if this deadline has also passed.
  • If it’s clear the client is avoiding the payment for some reason, find out why. Were they unhappy with the product or service? Perhaps that can be corrected. Do they understand the terms of your fee agreement?
  • Engage client stakeholders at increased seniority level and level of urgency. Do not stay stuck speaking to the same counterpart or junior employee. if necessary, go around or over their heads.
  • Request a face-to-face meeting. If the client is acting in bad faith, they will likely wish to avoid any face-to-face confrontation. Asking for a face-to-face meeting shows the problem is not going away and that you’re going to take the necessary steps to ensure you get paid. Often this request will be enough to get paid.
  • Escalate to legal for continued non-payment. Inform them that you would prefer not to have to escalate the issue but have no choice but to have your legal team take over. Give them another day to respond, and then, if necessary, engage a lawyer or collections agency to send a warning letter. This will not be excessively expensive and will show them that you are serious. The letter needs to outline the terms and reasons that payment is required. Neither client nor vendor typically wants to go to court but threat of legal action is a final step you may need to take. You will find that many clients will wish to avoid this at all costs and typically pay up at this stage.

In the end it may be necessary to offer an out of court settlement by offering or agreeing to discount a percentage of the amounts owed. If you are very confident you will win and the amounts are large enough to justify, going to a Japanese court may be your best (and only) choice. You may win, but legal costs and time spent will likely make both parties wish you had settled the matter earlier.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of TADirect or any other agency, organization, employer or company.

For more advice, feel free to contact Curtis Mackenzie – MD New Frame KK www.newframe.jp.