Getting paid on time

Why late payment is so common

Many SMEs in Pakistan extend credit informally and then hesitate to chase, because the customer is also a neighbour, a relative or an important account. Large buyers have their own approval chains and payment runs, and a missing purchase order number on an invoice can push the payment into the next cycle.

The result is a business that is profitable on paper and short of cash in practice. Collections discipline is cheaper than borrowing: each week a receivable stays unpaid is a week you finance the customer's business, often at your own overdraft rate.

Industry norms add to it. In some trades thirty, sixty or even ninety days are expected, and a new supplier who insists on shorter terms may lose the deal. Know the norm in your sector, then decide how much credit you can afford, and price the cost of waiting into your quotation.

Set the terms before the work begins

Terms belong in the quotation and the contract: the due date, the amount, the accepted payment methods, the account details, any advance and the consequence of delay. If you intend to charge a late payment fee, it has to be agreed in advance; the Contract Act 1872 allows the parties to agree such terms, and a fee that appears for the first time on the invoice invites dispute.

For larger jobs, split payment into stages tied to milestones, such as 30 percent on order, 40 percent on delivery and 30 percent on acceptance. A printing company in Karachi that moved from payment on completion to staged payments cut its longest overdue balances without losing a customer.

Ask early who approves the invoice and what the buyer needs on it, such as a purchase order number or a delivery receipt, and write those requirements into your template.

Credit limits help: set a maximum exposure per customer, based on their payment record and your own cash. A customer who has paid on time for a year earns a higher limit; a new customer starts low. Review limits quarterly and write them down so every salesperson works to the same number.

Invoices that get paid

An invoice that is hard to process is paid late. Put the invoice number, the date, the due date, the amount in rupees, your tax details, the order reference and the full bank details in a fixed layout. State clearly how to pay and ask the customer to quote the invoice number.

Send the invoice on the day of delivery, not at month end, and check by phone or message that the right person received it. A large share of late payments are invoices that never reached the approver.

With 4invoices you issue numbered PDF invoices with your account details and keep the archive, so you can see which invoices were issued and, by comparing with the bank statement, which are still open.

A reminder schedule that stays polite

Fix the schedule in advance and apply it to everyone. For example: a friendly reminder three days before the due date, a note on the due date, a second reminder after seven days and a phone call after fourteen. Writing the schedule down means nobody has to decide whether chasing a friend is awkward.

The tone of the message matters more than its force. Name the invoice, the amount and the date, thank the customer and offer a simple way to confirm payment. Reserve firmer wording for the later steps. 4notify can send these messages by SMS or WhatsApp from your account, so the wording is consistent and the team can see what went out.

A worked example: an invoice for Rs 240,000 is due on the 20th. On the 17th a friendly message is sent, on the 20th a short note, on the 27th a second reminder asking for the payment date, and on the 3rd a call to the accounts head. Of every ten invoices handled this way, a majority are usually settled before the call is needed.

Reading an ageing report

An ageing report lists open invoices by how long they have been unpaid: current, 1 to 30 days late, 31 to 60, 61 to 90 and over 90. Suppose a business has Rs 1,500,000 outstanding, of which Rs 900,000 is current, Rs 350,000 is 1 to 30 days late, Rs 150,000 is 31 to 60 and Rs 100,000 is over 90. The last two buckets, Rs 250,000, are 17 percent of the total but demand most of the attention.

Look at who is behind each number. One customer behind the over-90 bucket is a collections problem; five customers spread across it is a terms or invoice-quality problem. Raise the question with the customer while the work is still fresh, since memory of delivery fades quickly and disputes become harder to settle.

Ask your accountant whether to make a provision against old balances in your books, and whether any tax effect follows from writing a debt off. Do not write off a balance simply because it is old, since doing so may remove your leverage.

When a customer still does not pay

Review the ageing every week: invoices up to thirty days late, up to sixty and beyond. For the oldest items, agree a dated payment plan in writing instead of accepting a vague promise. If the customer pays by cheque, record the date and chase before it lapses, because a cheque that bounces is a serious matter and the dishonest issuance of a cheque is an offence under the Pakistan Penal Code. Take legal advice before using that route.

Pause new credit to a customer who is seriously late, and tell them why. A written demand letter drafted by a lawyer, followed if necessary by a civil claim or arbitration under the contract, is the usual escalation. Keep the contract, the invoice, the delivery proof and the reminder log together in one file.

Early payment can also be rewarded. A small discount for payment within ten days works for some buyers, but calculate the true annual cost before offering it. Compare it with the cost of the overdraft you would otherwise use, and decide with your accountant.

Agree written terms before work starts, send accurate invoices on delivery, put your bank details on every invoice and follow a fixed reminder schedule. Staged payments for large jobs and a pause on new credit for habitual late payers also help. Consistency matters more than harsh wording. Review the results monthly and adjust the schedule where it fails.

Parties can agree a late payment charge in their contract, but the term should be clear and accepted in advance, and some financial and Islamic finance considerations may apply. Do not add charges that were never agreed. Ask your lawyer to draft the clause for your contract template. State the rate, the start date and the calculation method in plain words.

A short reminder a few days before the due date works well, followed by a note on the due date and another about a week later. After two weeks, call the person who approves payments. Apply the same schedule to every customer so that no reminder feels personal. Record each contact so the history is available if the matter escalates.

Record the cheque details, contact the customer immediately and ask for payment in writing. Dishonest issuance of a cheque is an offence under the Pakistan Penal Code, and legal steps have strict time limits, so consult a lawyer promptly. Keep the bank's return memo and your invoice together. Deposit cheques promptly and keep the deposit slips to prove the dates.

4notify sends SMS and WhatsApp messages from your account, such as payment reminders. You decide who receives what and when, using the invoice list from 4invoices. It does not guarantee payment and it does not collect money for you. Check the invoice list before each batch so that paid customers are not reminded in error.

Information page

This page is informational. Confirm requirements with FBR, the provincial authority or SECP; 4b2b tools cover general invoicing and records only.