Imagine a tool that could help you chase unpaid invoices and take away the pain that comes with a customer refusing to pay. Sounds too good to be true? Using artificial intelligence could be the answer. <\/p>\n\n\n\n
Research shows small businesses are increasingly owed thousands of pounds in late payments. Almost a fifth (18 per cent) are owed up to \u00a32,500 in late payments \u2013 while two per cent are owed more than \u00a320,000, according to Simply Business research.<\/p>\n\n\n\n
For small business owners, the issue with customers and businesses not paying invoices on time is unfortunately very real \u2013 and has huge consequences to cash flow and even tax. <\/p>\n\n\n\n
This guide covers everything you need to know.<\/p>\n\n\n\n
You\u2019ve received a purchase order<\/a> from a customer, sent the items, and issued an invoice \u2013 yet you haven\u2019t received payment. What do you do now?<\/p>\n\n\n\n Most of the time, unpaid invoices can be easily settled with a quick overdue invoice reminder email to your customer, gently reminding them that they haven\u2019t paid.<\/p>\n\n\n\n When that doesn\u2019t work, however, or you get no response, then you\u2019ll need to send payment reminders. <\/p>\n\n\n\n Automatically send payment reminders <\/strong>\u2013 review your invoicing process and see what can be automated. Invoice apps can help you set up automatic payment reminders, such as \u2018due soon\u2019, \u2018due now\u2019, \u2018overdue\u2019, and \u2018very late\u2019.<\/p>\n\n\n\n Analyse data and predict payment<\/strong> \u2013 AI tools could help you look into customer historic behaviour to predict those that might be more likely to pay late. <\/p>\n\n\n\n Select optimal timing to send reminders <\/strong>\u2013 AI could help you personalise responses to late payments based on when customers usually engage with emails and messages. <\/p>\n\n\n\n These are just a few ways AI could simplify the extra admin that comes with chasing unpaid invoices, but there\u2019s only going to be more ways technology can help. <\/p>\n<\/div>\n\n\n\n When a commercial payment is overdue, a business owner is allowed to charge interest on top. The amount of interest you can charge is set out in The Late Payment of Commercial Debts (Interest) Act 1998. <\/p>\n\n\n\n The interest rate is eight per cent plus the Bank of England base interest rate (currently 4.25 per cent). You can also claim compensation of up to \u00a3100 for each invoice depending on how much is owed:<\/p>\n\n\n\n The law also allows businesses to claim for \u2018reasonable costs\u2019 if the cost of recovering the debt is more than the compensation.<\/p>\n\n\n\n You can charge interest and claim compensation as soon as the payment is overdue, as set out by your payment terms or agreed credit period.<\/p>\n\n\n\n Yes, small business owners and the self-employed can charge interest on overdue invoices. <\/p>\n\n\n\n The Small Business Commissioner has an interest calculator for overdue invoices<\/a> to help you work out how much to charge on top of the outstanding balance.<\/p>\n\n\n\n To work out interest, you\u2019ll just need to input the following information:<\/p>\n\n\n\n Remember, this article is just a guide, and it\u2019s always worth seeking professional legal advice.<\/em><\/p>\n\n\n\n If you\u2019re owed \u00a33,000 by a client, you could charge interest at a rate of 12.25 per cent<\/strong> (eight per cent above the current base rate of 4.25 per cent).<\/p>\n\n\n\n This would work out as \u00a3367.50 annually or just over \u00a31.00 a day.<\/p>\n\n\n\n To work out how much the client owes in interest, you can multiply the daily amount by the number of days the payment is overdue.<\/p>\n\n\n\n For example, if the payment was 20 days overdue, you\u2019d be owed \u00a320.14 in interest.<\/p>\n\n\n\n As the invoice is between \u00a31,000 and \u00a39,999, you\u2019d also be able to claim compensation of \u00a370.<\/p>\n<\/div>\n\n\n\n Payment terms and conditions are an agreement for when goods and services will be paid for. And \u2018trade credit\u2019 is when a supplier gives the goods to the customer and they\u2019re paid for later. <\/p>\n\n\n\n In the UK, the standard payment date is usually 30 days after the invoice has been issued \u2013 though you can change this as long as it\u2019s clearly stated in the payment terms. You may prefer a specific date, cash on delivery, or even up-front payment instead.<\/p>\n\n\n\n Make sure your payment terms are clearly displayed on invoices, along with details of payment methods. If you accept payment by bank transfer, make sure your account details are included too.<\/p>\n\n\n\n How you\u2019re taxed on unpaid invoices depends on the accounting method<\/a> you use. If you use cash basis accounting<\/strong> then you\u2019ll pay tax based on when you receive the money in your bank account. However, if you use accrual accounting<\/strong> (or \u2018traditional\u2019 accounting) then you\u2019ll pay tax on income based on the date of your invoice. <\/p>\n\n\n\n If you use accounting software then you should be able to write an invoice off as \u2018bad debt\u2019 if you haven\u2019t been paid for a certain period of time. Check what\u2019s possible with your specific app and speak to an accountant if you\u2019re not sure of anything. <\/p>\n\n\n\n There are some things you could try to minimise the chance of late payment in the first place.<\/p>\n\n\n\n Meeting your customers<\/strong> \u2013 <\/strong>sometimes meeting someone face to face before you decide to do any work from them can help you avoid working with potentially difficult customers. <\/p>\n\n\n\n Make your payment terms clear<\/strong> \u2013 your invoice<\/a> should include details of how to pay, your bank details, and clearly state the date they have to pay by. <\/p>\n\n\n\n Invest in <\/strong>accounting software<\/strong><\/a> \u2013 this can automate reminders to prompt payment, saving you time on chasing up unpaid invoices.<\/p>\n\n\n\n Consider credit checks <\/strong>\u2013 you could look into your customer\u2019s credit rating before working with them to help give you peace of mind. Many credit reference agencies<\/a> have affordable services for small businesses. <\/p>\n\n\n\nCould AI and automation help?<\/h4>\n\n\n\n
How much interest can I charge for unpaid invoices? <\/h3>\n\n\n\n
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Can I charge interest on late invoice payments? <\/h3>\n\n\n\n
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Example interest calculation<\/h3>\n\n\n\n
What are payment terms?<\/h3>\n\n\n\n
How unpaid invoices impact tax<\/strong><\/h2>\n\n\n\n
Tips for getting paid on time (preventing late payments)<\/h2>\n\n\n\n