When customers don’t pay their bills, this affects your cash flow and can mean you don’t have enough money to make essential payments to keep your business running. Managing late payment can be difficult because you don’t want to ruin a relationship with a customer but it is essential if you want to stay in business.
Asking people to pay you what they owe you is part of owning a business and should be done in a professional rather than an emotional way.
1. Set the terms early on
From the time you start doing business with customers, you need to carefully assess your risks of doing business with them. Myaccredit.com suggests you start by running business credit reports so you know more about your chances of receiving what they owe you.
If you expect 50% of the total cost upfront, you need to make this clear. If you expect payment in full on delivery of the invoice or offer the standard 30 days, state this on the invoice. Always pick a timeline for payment that serves your business needs and state this in the contract.
2. Invoice immediately after completion of a job
The sooner a customer receives an invoice, the earlier it becomes part of the next payment cycle. If you want to be paid on time, you need to make sure your customer receives the invoice as quickly as possible.
If a customer consistently pays late, try invoicing twice a month or even weekly. This can serve as a visual reminder that you’re on top of what is owed and make a customer more likely to pay promptly.
3. Offer early payment incentives and late payment penalties
Think about offering a financial incentive for quick payment, such as a small discount of 5% for those who pay within two weeks when the payment deadline is a month. It will not only help your cash flow but save you time in having to follow up on late payment.
You may also decide to impose a penalty for late payment. Think carefully about the percentage and timing because it can cause customers to feel resentful.
4. Don’t delay in contacting the customer
It is never easy to contact a customer about a late payment. However, you shouldn’t delay in following up. You don’t have to be aggressive but just offer a friendly reminder that payment is due.
Accounting software often automates invoicing and follow-ups. You can automate the sending out of reminder emails on late payment to save you time.
Customers tend to pay those who send reminders or phone about payment ahead of those who don’t. If the customer has a legitimate reason for paying late, try to work out some kind of payment option that suits both parties.
5. Keep all communication cordial and professional
Always keep your relationship with customers cordial, even with those who pay late. Any communication must be friendly, personalized and yet professional. Late payments are quite common and if you act unreasonably every time someone pays late, you’re likely to burn through customers very quickly. If you are patient when there’s a legitimate reason for late payment, you can generate goodwill that will benefit you in the long run.
If customers don’t pay at all, you need to stop doing work for them immediately. Make sure that every attempt you make to collect payment is recorded, whether in the form of emails or phone calls and make notes of what you discuss. This record, together with any contracts or invoices, will be necessary if you need to take legal action to enforce payment.