7 ways to avoid late payments from customers
All businesses have to chase slow paying clients at some point. Unmanageable accounts will put a major halt on cash flow, which is a huge problem especially for Small and Medium Enterprises (SMEs). Here are some easy and effective ways you can help you deal with late paying customers.
Being able to collect payments owed from your clients on time will hugely contribute to a smoother running of your business. Follow these simple steps to regain control of your cash flow and prevent unmanageable accounts:
1. Research and select your customers
There might be times where you may not be in a position to be selective, especially when business is slow. However, doing a little research in advance could actually save you money, time and trouble. Run a credit check, if possible, especially when you’re dealing in transactions worth a lot of money. You may not want to risk entering into a business arrangement with a prospective client who has a poor credit history.
2. Be clear on your payment terms
As a business you need to make sure customers understand your payment policy. Add a clear and visible credit policy to your bills or invoices, stating the payment terms (due in 30 days or 45 days) and late payment consequences. Be concise and precise in your wording, state an exact due date instead of using general phrases such as “due in four weeks”. You can even add a ‘late payment policy’, informing customers on your bills that you will charge a late fee for bills paid past their due date. This will hopefully get those slow moving clients paying.
3. Offer various ways of payment
The easier it is for your customer to pay, the quicker you will get your money. Instead of waiting for the cheque to be signed by the CEO and mailed to you, set up an online payment option. In the digital age, it has become easier than ever to accept credit cards and mobile payments, allowing you to get money in your account in days, instead of weeks.
4. Offer incentives for paying early
Offer an ‘early payment discount’ to prompt your customers to pay an invoice before the due date. The discount will depend on the client and the amount of work. You can adjust the discount accordingly, but do not forget to state in your payment terms that it will become invalid once the due date has passed.
5. Ask for up front or staggered payment
Depending on the size of the project you could collect either payment up front or ask for 50 percent deposit then charge the rest upon completion, especially if the client is new. Whichever strategy you choose to implement, make sure you write it clearly in your payment policy. Your customers need to understand that cash flow is crucial to the survival your business.
6. Digitise the billing and chasing process
To save time and resources, you could automate the whole invoicing and payment process. There are a number of accounting applications that will help to make things easier. Essentials Invoices for example is a great online application that will help businesses create, send and log endorsed quotations within a single system. Companies can receive automatic quotation acceptance/rejection updates in real-time. After a one-time set up, users can convert a quote to an invoice in just one click.
7. Be organised and follow up politely
Use your accounting software to review your bills and invoices at least once a week. Then develop a system for following up with payments that are several days or weeks late. It doesn’t hurt to send a reminder a few days before a payment is due. Whatever you do, remember to remain polite and friendly. By being polite, customers will respond more positively and you will have a better chance of getting your payment as soon as possible
To avoid late payments from customers:
Add a clear and visible credit policy to your bills or invoices, stating the payment terms and late payment consequences.
Make it easier for your customer to pay. Online payment is a great way for both parties to save time and resources.
Offer an early payment discount to prompt your customers to pay an invoice before the due date.
Collect either payment up front or ask for a 50% deposit then charge the rest upon completion, especially if the client is new.
Automate the whole invoicing and payment process by using accounting software such as Essentials Invoice.
Use your accounting software to review your bills and invoices at least once a week.
When following up remember to remain polite and friendly.