As the economy continues to improve, you may not have to deal with late-paying customers as often as you were, but plenty of late-payers are still out there. For small businesses, one late-payer can have a big impact on making payroll, paying your bills. and overall cash flow.
Here are 7 tips to avoid late-payers and ultimately collect your money.
1. Don’t delay invoicing customers
Send the invoice as soon as the job is complete or the product is shipped. Send the invoice by email for faster results or ask the customer how they prefer to receive invoices. Some may outsource their receivables to an online accounting solution business. Others may prefer to use PayPal or ACH. If you bill only once a month, make sure that is acceptable to your customers.
2. Be upfront about late fees and early payments
State on your invoices that late-paying customers will be charged a late fee for every month that the payment is past due., then incentivize early payments. Offer discounts if your customers pay sooner than net 30 days (such as 5 percent off if they pay within 10 days).
3. Generate monthly financial statements
They’ll help you keep on top of what’s due for payment, which customers pay on time, and which consistently pay late. Accounting software lets you easily generate an income statement, balance sheet, and cash flow statement. Use these tools to stay on top of your financial picture and pinpoint potential problems early.
4. Don’t wait to follow up
If the customer’s payment hasn’t come in when it was supposed to, don’t feel it’s pushy to send a quick email or make a friendly call. If you do nothing, the customer might figure you don’t care and pay someone else who is demanding payment.
5. Be sympathetic, but firm
If your customer can’t pay on time for some reason (cash flow problems on their end), work with them to find a solution beneficial to both parties.
6. Work with late-paying customers
If a customer is experiencing cash flow issues and can’t pay the full amount right now, work out a payment plan. If it doesn’t look like you’ll ever get paid, make sure you keep a paper trail of all your invoices, contracts, and attempts to obtain payment. Detailed documentation will help you in case you need to plead your case in court. If you choose to deal with these customers again moving forward, protect your business by requiring at least partial payment upfront before any work is done or any product is shipped.
7. Make a clean break
If you find a business is regularly late with payments, stop doing business with them. If you must continue a relationship with a late-paying customer who owes you money, insist that any new products or services they receive from you are C.O.D. (Collect on Delivery) until they can prove solvency.