On-time payments are vital to the health of your business.
10 Sep, 2017ENTREPRENEUR.COM
On-time payments are vital to the health of your business. But inevitably, you’ll run into at least one customer who consistently fails to pay on time. If it continues to become a problem it’s on you to take proactive action and correct the situation.
You’ll have many options in your arsenal to deal with it.
First, let’s cover why this is an important matter in the first place. Who cares if your customers fail to pay on time late occasionally?
Strategies to improve timely payments
Fortunately, there are a variety of strategies you can employ if you find yourself consistently unable to get payments from your customers on time:
1. Tighten your invoicing process.
Your first step is to audit your invoicing process. Chances are, something is wrong with it. If you don’t have an invoicing process fully documented and in place, that should be the first place you start. Beyond that you’ll need to be consistent about when you issue invoices and how your departments communicate. Additionally terms and conditions as well as late penalties should be clearly defined. Without a follow-up process in place, your invoices will easily get lost or ignored. There are two steps to this process; first, make sure that your procedures make sense on paper. Do you have firm protocols in place, or are your employees just supposed to wing it? Then, monitor and engage with your employees to make sure they’re following that on-paper process in real-time. If they’re not consistent with their implementation, it could compromise your results.
2. Issue formal warnings.
If your customer is more than a few days past due, it’s a good idea to issue a formal warning. You can start with an email giving the client a friendly reminder of how they can pay. If that doesn’t work, you can use follow-up emails, letters and phone calls in succession to follow up on payment. If necessary, you can also warn your client about legal action if the invoice remains unpaid. These are important for several reasons. Most importantly, they’ll resolve innocent mistakes (the client simply forgot), and will put pressure on the business to make a full payment.
3. Change terms for your best (and worst) customers.
If you have specific problematic customers, or specific customers who always pay on time, consider choosing different terms for payment. For example, if client’s habitually pay late, then you can consider changing the terms for those clients. Additionally you’ll also need to consider if and how you penalize late payments. Some states do have a strict limit on how much of a late fee you can charge, so make sure to do your research; otherwise, an annual interest rate of no more than 10 percent will likely keep you well within those restrictions.
4. Accept more types of payments and plans.
Some clients will be unable or unwilling to pay on time simply because of their circumstances. They may be struggling with cash flow, or are so bombarded with work, they forget to pay their invoices in a timely manner. Luckily this can be easily solved by offering alternative payment plans. For example, you might split one big invoice into three or four smaller invoices, or set up a weekly installment plan. If you can, have an open, honest chat with your client about why they’re not making timely payments; if you can discover the root cause, it will be far easier to find a solution.
5. Use factoring.
If you’re in a tight spot, and your changes aren’t yet taking effect, you can pursue a strategy known as factoring. The process is pretty simple; you’ll look for a factoring company that can provide you factoring services, and you’ll “sell” those companies your unpaid or past due invoices for a fixed amount, usually a specific percentage less than the full amount owed. The factoring company will pursue the client for payment, and you’ll get to walk away with the cash. This isn’t a good long-term fix, since you’ll be losing money and chasing your customers almost constantly, but it’s a good way to get past a rough cash flow patch.
6. Fire problematic clients.
If you have a selection of clients who are constantly frustrating to deal with, you should consider firing them altogether. If you’re a young company that’s struggling with income, it may seem like a waste of revenue -- but you’re not getting that revenue steadily anyway. If a customer has ceased all forms of contact, this firing process will be easy -- they’ll probably be expecting your services and/or communication to cease. Otherwise, you’ll need to have a direct, straightforward conversation about
7. Take legal action.
If you’ve exhausted all other options then you may want to consider legal action. Collect as much information as you can on the engagement and contact a lawyer to discuss the possibilities. Depending on the amount owed, it may not be worth your time and money to chase down the late payment, so weigh your options carefully before proceeding.
Related: You can now find jobs on BEAM
If you want to be successful with any of these strategies, you’ll need to follow these tips at a minimum:
Chronic late payments are a problem that many businesses eventually face. Fortunately, with a few strategic changes, and a commitment to revising your approach, you should have no trouble restoring your invoicing process to what it used to be.
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