How to Deal with Consistently Late Payments From Clients
Posted by Harshal on September 26th, 2022
The key to the success of your business is to learn how to manage and maximize the cash flow in your business, and the timing of collecting payments from your clients can have a huge impact on your bottom line. Clients who refuse to pay for services or suddenly stopped paying can be problematic for any medium or small business. Following a few simple advices, you can help boost your company’s cash flow and protect it from the pain of late payment.
1. Be Clear and Concise with Your Payment Terms
Make sure your payment terms are clear. Payment due dates and late penalties need to be well-established. These should be communicated with new clients upfront. For existing clients who are paying late, reiterate your payment terms and penalties.
2. Connect with the Right People from the Start
Establish a relationship with the person paying the bills on the other end as soon as possible. Make sure you introduce the right people to each other early on to avoid emails or voicemails landing in the wrong place and going unattended to as a result.
Understand how and when your client processes invoices. For example, if they make payments once a month and you invoice on a specific day (which happens to fall the day after the day they cut checks every month), that will result in your payment being received way later than it needs to be. Work together with your clients throughout the process so you can receive your money faster.
3. Offer Appealing Incentives to Pay Early
Offer early pay discounts. Some enterprise clients and large clients are required to take discounts when offered. Reasonable options include offering a 1–2% discount for paying 10 to 15 days before the due date. Can you require ACH payments to ensure payments are made or received early? If you are able to control the payment method to one that works best for your cash flow, that’s even better.
4. Follow Up Immediately on Late Payments
Reach out to new clients 15 days before their first invoice date to check in and proactively work out any issues that may affect the receipt of the invoice. This is not a collection call and you don’t need to do this after the first cycle. It’s simply a courtesy and ensures you and the client are both on the same page.
After that, if your due date was clear and you have a client who misses the deadline, you need to then follow up with them immediately. Give them a call within a few days of the missed deadline to make sure they received the invoice. You can give them the benefit of the doubt at first; maybe the invoice got stuck in somebody’s inbox. But you don’t want to wait 45 days to find out that the invoice was never received in the first place.
5) Overdue invoice
The day theinvoice becomes overdue, ring up and politely ask if there is a problem because payment is late. The only excuse for non-payment is not having the money. Everything else is make-believe. So be polite, but persistent. Point out that interest is now accruing on the invoice.
6) Documentation of calls
Keep notes of every conversation you have from now on and immediately fax the customer a summary after each call.
7) The cheque is in the post... (1)
If they say they will put a cheque in the post, ask them to post it first class and allow three days before calling again.
8) The cheque is in the post... (2)
Next time they promise to post a cheque, ask them to fax a copy of the signed cheque to you. Then at least you know they have written it and intend to pay. Alternatively ask them for the cheque number.
9) Pay a visit
If the company is local, phone in the morning and say you will be in reception at a specific time to collect a cheque in the afternoon. Be prepared to sit some time if necessary.
10) Write a letter
If they are too far away to visit, write a bland letter (no matter how angry you are) stating the facts only. Draw attention to your terms and conditions of trade and itemise each call you have made chasing payment, enclosing copies of your faxes confirming these conversations. Say that you can no longer supply them and point out that if you have not received a letter within seven days, you will have to take legal action. Be prepared to keep your word, however.
What more can I Do?
No matter what happens with a particular late payment case, use it as a learning experience and build safeguards into your credit and invoicing policies going forward to prevent late payments in the future. It’s not unusual for entrepreneurs to let these things slide but stand tall.
Also, a practical solution for growing firms that don't have time to devote to these things can be to get in touch with companies that provide accounting services for small businesses. They have experienced professionals who have ample expertise to tackle such types of situations. In addition, it is also a cost-effective solution.
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About the AuthorHarshal
Joined: May 27th, 2021
Articles Posted: 25
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