Selling on credit is how many businesses win customers, and also how many run out of cash. You have paid for stock, wages and rent, but the money you earned is sitting in someone else's account. Collecting it is not rude; it is part of running the business. The aim is to be firm, fair and consistent, so good customers pay on time and bad ones are identified early.

Set the terms before you sell

Most payment problems begin with unclear terms. State the payment period on every quotation and invoice, such as 14 or 30 days, say what happens if payment is late and agree it before the work begins. For new customers, ask for a deposit or part-payment upfront. A good invoice is part of the process; read VAT invoices and quotations: what to include and issue the invoice the day the work is done, not at month end.

Check customers before extending credit

Ask for references, look at how they pay others and start with a small limit. Increase it as they prove reliable. Large customers can be slow because of their internal approval process, so find out who approves payment and what they need from you, such as a purchase order number or a delivery note.

Track every invoice

You cannot chase what you cannot see. Keep a list of invoices with the due date, the amount and what has been paid. The aged receivables tracker groups unpaid invoices by how overdue they are, and the credit control and bad debt tracker records every reminder and promise. Review it every week, not once a quarter.

A reminder routine that works

  1. Before the due date. Send a friendly reminder a few days ahead with the invoice attached.
  2. On the due date. Confirm the invoice is due and ask when you can expect payment.
  3. A week late. Call. A polite call is more effective than another message.
  4. Two weeks late. Send a written notice stating the amount, the due date and the date by which you expect payment.
  5. A month late. Stop further credit, escalate to the decision maker and consider a formal demand letter.

Keep each message short, specific and professional. Record the date of every contact.

Offer ways to pay

Make it easy for customers to pay: provide a till or Paybill number, a bank account and clear payment instructions on the invoice. If a customer is in genuine trouble, a payment plan with firm dates is better than nothing. Put the plan in writing and keep supplying only if the first instalment is paid.

Consider the tax angle

Chasing late payers matters for tax as well. If you account for VAT on the basis of invoices, you may owe VAT to KRA before the customer has paid you, which strains cash further; see how to file a VAT return and VAT for small businesses. Plan for it in your cash flow forecast, and use the VAT calculator to see how much of each invoice belongs to KRA.

When a debt will not be paid

Some debts are never collected. Before writing one off, make sure you have tried every reasonable step and kept a record of each. A bad debt that has been properly documented may be deductible, but the rules are specific, so ask your accountant. Read invoicing and getting paid on time for more on prevention.

Protect the relationship

Most customers who pay late are disorganised, not dishonest. A calm tone, a clear request and an offer to help resolve a query keep the relationship intact. Where a late payer is also a valuable customer, decide in advance what you will tolerate and agree new terms. Where a customer repeatedly pays late or disputes invoices, require payment upfront or stop selling to them.

Make it a habit

Choose one day a week for collections and treat it like any other appointment. Track your average days to collect, because it tells you whether the process is working. Even a reduction of a week in the time it takes to be paid releases cash you already earned. Combined with good budgeting for a small business, it gives you a stable base to grow from.

Review your results

Every quarter, look at which customers paid late, how late, and whether the terms you gave them were sensible. Adjust credit limits, require deposits where trouble recurs and thank the customers who always pay on time.