As a business owner, managing your debtors and improving your cash flow are crucial to the success of your business.
Therefore, you must take proactive steps to avoid customer payment disputes and prevent cash-flow issues. This article explains how to avoid or resolve invoice payment disputes.
Draft Effective Business Terms and Conditions
A customer enters a binding contract each time they buy from you. A written contract setting out the terms of that transaction provides clarity and can reduce the risk of invoice payment disputes arising. Here are four top tips for writing your business terms and conditions:
|Be clear about what products or services you sell
|The more detail you provide about your goods or services, the more customers know what they are getting. This may help if a dispute arises and they try to avoid payment.
|Dictate how your client or customer can accept your business terms and conditions
|Once they accept, your customer will be bound by your terms and conditions. Standard acceptance methods include signing, ticking an acceptance box online, confirming in writing or paying a deposit. Choose the method that best suits your business and your customers.
|Set out your payment terms and acceptable methods of payment
|Payment terms should indicate the timeframe in which you require the customer to make payment. You should also set out the consequences if the customer fails to pay on time, such as being charged interest on overdue amounts.
|Include a dispute resolution clause
|In the unfortunate event that a dispute does arise, a dispute resolution clause can assist you in resolving the dispute faster and more cost-effectively. Dispute resolution clauses usually require an attempt at Alternative Dispute Resolution before escalating the matter further.
Your business terms and conditions are essential in managing your debtors. Therefore, you (or your lawyer) should draft these terms specifically for your business. They will form the foundation for any future debt recovery proceedings. It is far easier to point to terms and conditions in an agreement than to rely on a verbal agreement or informal email chain.
Avoid Delays and Always Follow Up
Issue invoices promptly while the transaction remains fresh in your customer’s mind. The invoice should contain sufficient detail about the goods or services you have provided to avoid confusion.
Once an invoice becomes due, be sure to follow up. You may only need to give customers a friendly reminder by email or phone.
Additionally, diarising when accounts become due or implementing an automatic notification system into your accounting software are great ways to keep on top of debtors.
Keeping the lines of communication open with a customer who owes you money is essential. If those lines of communication close, it is unlikely that you will receive payment without escalating the matter further. Some tips for keeping communication open:
- resend a copy of your outstanding invoice;
- remain calm as disputes tend to escalate quickly (sometimes unnecessarily) when emotions are left unchecked;
- speak with the person responsible for paying your invoice;
- confirm in writing the amount outstanding and when payment was due;
- ask questions and listen. There may be a reason your invoice has not been paid; and
- keep a paper trail. If you start debt recovery proceedings later, you can use this trail as evidence.
However, even after doing everything in your power to coerce payment, escalating your debt recovery to a lawyer may be your best option. In this case, issuing a letter of demand is the next step.
Resolving invoice payment disputes quickly can improve your business’s cash flow by ensuring you receive money owed in time to pay your debts. You can increase the odds of customers paying on time by having well-drafted terms and conditions, following up promptly and keeping communication open.