When operating a business, some of the biggest frustrations of any business owner or manager are chasing after late payments from customers. Here we discuss what to do when clients not paying invoices.
Late payments tie up the money you need for bill payments, marketing, new product development, and other revenue-generating activities. You may be forced to dip into cash reserves or waste time you could be spending on paying clients.
Financial troubles, oversight, and lost bills are some reasons that may force a customer to delay payment. Sometimes, even the best customers are unable to pay on time. While disruption in business operations is infuriating, a savvy businessperson gives every client the benefit of doubt before escalating issues.
Business owners have plenty of options when it comes to chasing down payments from late-paying customers. Make sure you exhaust all avenues before you burn bridges and jeopardize future earnings.
Here are some tips from the Business Men’s Edition Blog that you can use to secure late payments and increase customer loyalty so that they are incentivized to pay on time.
1. Set payment expectations from the onset
Create trust by discussing all costs and payment terms before getting into business with a client. Make sure that they understand the terms and make a commitment. Answer all questions upfront and alert the customer about any changes along the way in real time. Establishing clarity from the beginning creates a strong and positive relationship between you and your customer.
If you are worried about non-payment, avoid an invoice system and bill for the work upfront. Ask for a deposit before you deliver any product or service. This strategy is especially effective if you have a consistent track record. It will help you identify and avoid problematic clients from the start.
2. Bill promptly and follow up politely
Invoice as soon as you render products or services. Prompt invoicing sets up a professional tone that communicates your seriousness about quick payment. Follow up the invoice with a friendly reminder to make sure it has been received. Make sure the pay-by date and payment terms on the invoice are correct and clear. The invoice should also include details such as the dates when the work was completed.
3. Leverage your products and services
You could withhold a product or completed work until the client completes the payment. Refuse politely to take on new projects until a payment plan is established or payment is received. To avoid surprising your clients, set this expectation upfront.
4. Use a collection agency
If you are convinced that your efforts will not result in payment, you should contact a collections agency as a last resort. Make sure you’ve exhausted all typical methods of payment collection including phone calls, emails, and letters. The amount of money you are pursuing should also be worth hiring a collection agency. The agency will act as a buffer between you and the client. Avoiding direct confrontation will help preserve your relationship.
5. Let it go
Late payment or non-payment can be extremely frustrating. You must be careful not to let emotions cloud your judgment when pursuing the debt. If you have exhausted all avenues including hiring a collection agency, the pursuit could be more costly than the money you are owed. Letting go can save your time, money, and peace of mind. Use the experience as a learning opportunity and walk away.
How to future proof your business from late payments?
1. Automate invoicing and follow-up
recommends using software tools for invoice and payment processing. There are several technologies that your small business can harness. Payment processing software allows you to manage invoicing and collect payments easily. You can accept customer payments via diverse options increasing the likelihood of receiving prompt payment.
2. Set up a personalized invoice schedule
Consistently late payments could be a result of a client’s inability to keep up with your invoice schedule. You don’t want to discourage an interested customer by charging them late fees, yet they have every intention of making the payment eventually. Collaborate with your customer in adjusting your invoice schedule to make it easier for them to pay. For example, a client may find it easier to make a series of small payments rather than a single lump sum.
3. Offer several payment options
Make it easier for your customers to pay you and you will get your money on time. Making financial transactions has become easier than ever in the digital age. You should not rely solely on cheques. Instead, you need to set up multiple payment options including online and mobile. This way your customers will use the most convenient payment option available to them and the payment processing time will be shorter.
Bottom line
Cash flow is the lifeblood of any small business. Unpaid invoices can damage your business but destroying important client relationships is equally damaging. You must find a balance between pushing back on overdue payments and keeping clients in your sales pipeline. Empathy and discretion will inspire loyalty and improve your relationships with clients.
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