The Ultimate Guide to Handling Late Client Payments Using Invoice Finance

Late client payments are a common issue. Whether you’re a web designer, personal trainer, or handyman, you’re going to experience times when clients are late with payments or simply refuse to pay at all. Not only is this frustrating as a business owner, but it can also negatively impact your cash flow and cause a snowball effect that leads to a range of other problems. Naturally, this is something that you don’t want to happen – no matter the circumstances.

So, are there proven steps that you can take to handle late client payments? Absolutely. By following these steps, you can protect your business and keep your cash flow healthy.

Step 1: Consider Invoice Financing Help

The first step is to consider getting invoice financing help.

You can use broker FundInvoice to help find you a funder for your invoices. In a nutshell, this works by the funder giving you a percentage of the invoice you’re owed, this will generally be somewhere between 85-100% of the invoice amount, but the amount given will depend on the specific circumstances. Once your client eventually pays the invoice, you’ll receive the balance minus the fee that is owed to the funder. That repayment ensures that the funder gets their money back – simple.

Step 2: The Client Starts to Repay 

Once you’ve successfully applied and received your invoice financing, the next step is to open up communication with your client and adjust their deadline. If you use a factoring facility (which includes both finance and a credit control service) the funder will do this for you. If you opt to retain your credit control in-house by using invoice discounting (finance without a credit control service), you will need to negotiate with your customer.

The client has likely already given you the reason why their payment is late. For example, they might be experiencing financial difficulties. Whatever the reason might be, it’s important that you work with your customer to help get the issue resolved. In most cases, all you’ll need to do is rearrange a repayment deadline.

If you are using invoice discounting, once the client starts making repayments, the money will go into a trust account controlled by the invoice financing funder, but it’ll appear to your customer like the account is controlled by you. Here, the client thinks they’re paying you when they’re actually paying the finance funder. With factoring the customer pays direct to the funder.

Step 3: The Funder Gets Its Money Back 

Hopefully, either before or on the deadline, your client will have paid the money they owe.

Once this is finalised, all parties are happy. You’ve been paid your invoice (minus the fee) and the funder has also received its money back.

Summary – What Happens Next?

Moving into the future, you can use this 3-step process whenever you experience late client payments again. It’s a proven and effective way to ensure you maintain a healthy cash flow during a time when the global economy isn’t doing great. As they say, cash flow is king!

When it comes to getting invoice financing, you’ll have to pass some basic checks, however the funding tends to be based on the strength of your sales ledger rather than your financials or credit score. But using a broker to find your funder will mean you are most likely to get the best deal for you. It’s also important to remember that (in most cases) the invoice itself is used as the security – not any of your other business or personal assets – which can bring peace of mind.