How to effectively deal with late payments
Getting paid on time and in full is just as important as signing the deal or making the sale. But it’s a frustration that every business is likely to face at some stage. Chasing after late payments is not only time consuming and stressful, but it can have a significant impact on your cash flow and a knock-on effect on your business’ viability.
Here are 5 tips to mitigate the effect of late payments:
- Set your payment terms in stone
Ensure your customers are clear on your payment terms, e.g. payment deadlines and what the penalties will be for late payments. This should be communicated to your customers upfront, so they know what to expect and you can remind them instead of having to awkwardly approach the subject and surprise them with penalties later.
Tip: Create a working relationship with the person paying the bills so that you’re guaranteed that your invoice is received, and you have a direct line of contact to discuss any delays.
- Invoice on time
Sending out your invoices accurately and on time will increase your chances of receiving payment on time. Delays on your end could mean your customer receives the invoice after they’ve done their payment rounds and you might have to wait for their next payment run to get paid.
Tip: Make sure that all your information and the invoice details are accurate, so the invoice isn’t sent back because of errors, delaying payment further.
- Follow up immediately
Address overdue payments swiftly before it becomes critical to your cash flow. The longer the debt is outstanding, the more damage it can cause your business. Call them to check that they’ve received the invoice and politely remind them of the payment terms. Be persistent and continue to follow up.
Tip: Give your customers regular and polite reminders that the payment deadline is approaching. Have a script prepared so you’ll know what to say.
- Make it easy to pay you
Paying bills can become complex, especially if you are one of many vendors the customer needs to keep track of. Confirm your banking details and payment terms on every invoice so they have everything they need to pay you, and if relevant, include your VAT and tax details. You can also consider incentivising early payment by offering customers a discount on the bill, motivating them to pay sooner and helping you secure cash flow.
Tip: If you’re collecting recurring payments, consider automating them so you won’t have to chase debt every month.
- Enforce your payment policy
Being firm is necessary but not always easy. If a customer pays late, you need to charge a penalty fee – not only because of late payment, but because of the costs you will incur as a result. You can also stop providing your services until the late payments have been recouped.
Tip: It’s your right to get paid. Know your worth, ensure your terms are clear, and stand your ground.