9 Ways to Reduce Late Payments
July 6 2017
Nothing can put a bigger crimp in your business's cash flow like outstanding client invoices. According to one survey, nearly a quarter of the business owners surveyed say collecting on overdue invoices is the biggest challenge in their business. As if that wasn't bad enough, more than a third of receivables don't get paid on time. So what's a business owner to do? Here are our suggestions for handling late payments.
Automate your invoicing
Most cloud accounting software will allow you to automate your invoicing. For customers on a set regularly-billed rate, your invoices can be sent on the same day every month automatically without you lifting a finger. A good software will indicate when your customer opens the invoice, alert you when the customer pays it, notify you when it's nearly due and send a reminder to the client, and send email reminders when it's late.
Invoice immediately
Rather than setting your billing for one day a month, invoice the customer as soon as they receive the product or service. Chances are better you'll get paid faster when the work is fresh in their mind.
Set firm and clear payment policies
Gone are the days when you needed 30-day payment terms. Most SMBs don't have the luxury of waiting a month for payments. 7-day payment terms are perfectly acceptable for most businesses. Keep in mind that many businesses pay their invoices after the due date, so set your payment terms accordingly. Make sure your clients and customers know your payment terms, along with any penalties (more on that in a moment) when they sign their contract. And if they're late with their payments, you'll have something to back you up.
Have a process for late payments
This is easier if you have an accounting software that automates your invoicing. Be sure to lay out when you'll start contacting clients directly, whether through email or phone calls. Set when you'll send a registered letter if it gets to that point. Sticking to the process will help reinforce it.
Conduct credit checks
Credit checks in business are routine, so don't be worried that your customer will see it as a lack of trust. It can take some time to conduct credit checks, but it could save you valuable time, money, and frustration down the road.
Charge interest
Your credit cards charge a late fee, so why shouldn't you? Make it clear in your service agreement and on every invoice that late pays will receive a late charge.
Offer incentives for early payment
If you don't feel comfortable charging a late fee, flip it around and offer your customers a reason to pay early. Saving money can be a powerful way to motivate your clients. The discount need not be overly generous; five percent is more than enough.
Fire the late payer
If you've tried to implement all of the above, it may be time to let your customer go. Late payers use up valuable resources, including energy that could be better used getting new customers who will pay on time.
Hire an outsourced CFO
Sometimes it pays to bring in the professionals. If late payments continue to be an issue, hiring an outsourced bookkeeping and CFO service can help. They can get you set up on a cloud-based accounting software that can help automate your invoicing. Getting your cash flow running smoothly will benefit the health of your bottom line. While you may never fully eliminate late pays, putting these steps into action will increase your chances of getting you paid on time so you can spend more energy on growing your business.
Get In Touch