There are a number of ways a business can deal with slow paying customers. This is a bigger challenge for small companies that don’t have employees dedicated to collections.
Ultimately, slow-paying customers affect your cash flow and distract you from running the business
You delivered your product or services on time and your client was happy with the speed of service. The invoice due date has now passed by several, and it isn’t the first time this has happened with this customer.
- 1 How to respond to late payment
- 1.1 1) Reviewing Customers Payment History
- 1.2 2) Create a Clear Contract
- 1.3 3) Immediately Send an Invoice
- 1.4 4) Clearly State Due Dates and Late Penalties
- 1.5 5) Send Due Date Reminders
- 1.6 6) Offer Early Payment Incentives
- 1.7 7) Ask for a Deposit
- 1.8 8) Lower Credit Limits
- 1.9 9) Place Accounts on Holds or Stop
- 1.10 10) Ask for a Personal Guarantee
- 1.11 11) Hire a Collection Agency
- 1.12 12) Make Exceptions
How to respond to late payment
Business owners can carry out the following to ensure that they respond quickly and professionally to late payments by their customers.
1) Reviewing Customers Payment History
By reviewing your customers payment history you can determine what type of slow payer you’re dealing with. There are some slow payers who take their time but reliably pay at the end of the payment term, such as large corporations or councils. Then there are the constant slow payers who consistently pay late. These types of behaviour need to be addressed as they can make or break a business.
2) Create a Clear Contract
By clearly stating payment terms and penalties for late payment in a contract, this will avoid confusion about your terms and expectations.
3) Immediately Send an Invoice
Immediately issue your invoice, don’t wait until the end of the week or month to issue an invoice, this sends the wrong message and allows credit terms to be extended.
4) Clearly State Due Dates and Late Penalties
Clearly stating your payment due date and any late penalty charges on all invoices and statements this will help reinforce your message to your customer that late payment will not be tolerated.
5) Send Due Date Reminders
Just before an invoice is due for payment, send a friendly reminder via email, payment reminder letter or text that their invoice is due for payment on such a date, this will help with prompt payment.
6) Offer Early Payment Incentives
Offer your customer early payment incentives if they settle their invoices before the date due. This will help your business with cash flow and also save your client money.
7) Ask for a Deposit
For some slow payers or accounts that don’t have much of a history of payment with your business, ask for a deposit or advance payment on account. This will ensure you are financially secure as well, while the customer builds up a credit line with your company.
8) Lower Credit Limits
If your customer is constantly late making payment it maybe that they are financially struggling with cash flow, as a business one good way of protecting yourself is to lower the credit limit. In order to maintain the relationship send a polite email or have a telephone conversation explaining why you cannot extend credit at this time, and offer other options such as cash on delivery.
9) Place Accounts on Holds or Stop
Placing an account on hold or stop, this will suspend all goods or services until your customer brings their account up-to date. Explain that your accounts department has requested this, hopefully your customer will speedy settle their account.
10) Ask for a Personal Guarantee
If your customer constantly is late and you are worried about them paying their account in the future, you can ask that they offer a personal guarantee incase they do not settle their account or the business enters insolvency.
11) Hire a Collection Agency
Some customers simply will not pay and are not a customer that you want. In these types of cases, a professional collections agency may be your best option.
12) Make Exceptions
Sometimes you will need to make exceptions with some customers, but this must not occur on a regular basis. This works for good customers you want to keep and who can get current in the short-term.
Should you client need to agree to a payment plan for the past due amount, this will need to be revised for future sales. This will not only reduce your risk, but it will also help build the relationship. Your customer will remember you were there for them in their time of need.
A good start to gaining an inside into late paying customers is to carryout a credit review of prospective customers and by regularly reviewing the creditworthiness of existing customers.
A number of companies offer business credit reports, this will consolidate the key information needed to assess credit risk.