Late payments are the scourge of all small businesses owners. They disrupt cash flow, they put you in an uncomfortable position, and waste hours of your valuable time trying to chase up. But it doesn’t have to be that way. There are some simple steps you can take to help avoid the ‘late-payer’ and dodge messy legal action. Here are our 5 top tips on how to mitigate late payments.
- Research your customers
While it may feel like you need to say yes to every new client to walk in the door, remember you can safeguard your businesses by doing a few quick steps before you sign them up. You can guarantee that they’ve done their researched and checked you out before they’ve decided to work with you, so now it’s your turn to investigate whether or not they’re the type of people you want to work with. There are a variety of online tools and services on offer that can check a client’s credit history and see if they are the type of customers who’ll cause you more pain than dollars! Informally, you can simply talk to past providers and ascertain what they were like to work with. If you discover some unsavoury credit history, you’re then in a much better position to either say no to their job or adjust your terms to compensate for their potential issues.
- Adjust your T&Cs
Once you’ve done your client research, you’ll be able to assess their position and can change your terms and conditions accordingly. If they have a 5-star rating and are known for being prompt payers or only need a small amount of work, use your standard 30-day terms. If a client presents slightly more unsavoury in regards to past payments, have a different set of conditions established, like payment in advance or payment on the day of service. Don’t feel like you need a one-size-fits-all model. Every client is different, and by assessing their needs on a case-by-case basis, you’ll be able to tailor your payment terms to protect yourself – and make it easier for them to manage in the long run!
- Offer incentives and flexible payment options
Discussing payment options can seem very daunting at first, especially if you are just establishing yourself or are new to the invoicing side of business. It is best for both your client and for you if you discuss payment terms and options before you start working together. Incentivising payments is proven to increase payments on or before due dates. This incentive can be in a positive way – by offering a discount if they pay on time. Or if you can’t afford to absorb costs, you could consider charging a late payment fee. In each case, be sure to run your client through the options, so they are aware and comfortable with the terms. It’s also of benefit to both parties if you offer flexible payment options like monthly payment plans, or setting up direct debits. They don’t have to worry about a big invoice coming in, and they can prepare for the monthly payments coming out. As always, though, talking to clients before you start means everyone is aware of the processes, and any issues can be discussed before those overdue stamps need to come out.
- Invoice Quickly
You have a lot on your plate, you’ve just been in meetings all day, you have a tonne of work to catch up on and a tonne to start, all you want to do is get stuck into the work – not deal with the admin side of the business. It may sound familiar, but it is no excuse for not invoicing straight away! By sending an invoice as soon as you’ve delivered work, you’re not only keeping on top of your accounts, but it’s an excellent opportunity to touch base and see if there is anything else they need. And while discussing your invoice – it may sound simple, but make sure all the details are easy to find and include all relevant information to save any unnecessary back and forth with your clients that may delay payments. It’s always a good idea to get someone not involved in finance to take a look at it and see if it is clear and makes sense.
- Establish a follow-up system
Once you’ve sent your invoice, don’t let it get lost in the paperwork black hole. Take pro-active follow-up steps to make sure clients know when it is due. It can be as simple as setting a reminder to contact a customer a week before an invoice is due to ‘touch base’ and see how things are going. This step keeps your relationship friendly and allows you to follow up anything outstanding or answer any questions they might have. It’s often the case that people simply forget an invoice is due, and a first reminder notice promptly jolts them into action. By keeping on their radar, you and your invoice, won’t get lost in their in-tray.
Even in the accounting and financial world, overdue invoice conversations are awkward for everyone involved. But by setting up a few extra steps in your process, you can not only avoid the common late-payment reasons, but you can also grow your relationship with your client. By following the steps above, you can minimise the impact on your cash flow and cut down the invoice chasing hours, which means more time – and money – for the parts of your business that you love!
Melissa Penn, national franchise general manager, First Class Capital
