In business, it’s pretty much inevitable that you will have to deal with some late payments at some stage. However, if you find that more of your customers are paying well after the due date than are paying on time, you will quickly notice that your cashflow (not to mention your stress levels) becomes affected.
This is why it’s important to have a plan in place to help you get clients into the habit of paying on time as quickly as possible. From making your payment terms clear, and sending out quick and regular reminders, to running credit checks and setting up a direct ACH payment for your clients, there are a number of things you can do to show customers that your terms really do need to be adhered to. Read on for some strategies you can follow to decrease late payments over the coming months and help your cashflow flourish.
Ensure Payment Terms Are Clear
As simple as it may sound, one of the first things you can do to prevent late customer payments is make sure that your payment terms are clear. After all, if it isn’t easy for clients to see when a bill is due, they’re never going to pay it on time. Before customers place their first order using an account, the terms of payment should be discussed with them, and also placed within a written agreement if you have a contract with them as their supplier.
Each invoice that is sent to a client must have the payment terms clearly listed, in a prominent place, in large font, and the due date should be easily visible. In addition, it’s important to make it easy for customers to pay so that if they sit down to transfer money they don’t have to go searching for the necessary information. Your bank details (or any other applicable payment details) should be stated on each invoice, as well as your requirements about which reference number or name customers should use when making payment.
Run Credit Checks
Another way to prevent late payments is to not give terms to undesirable customers in the first place. You should set a strict policy that is adhered to at all times, as this makes it easier to explain to new buyers who ask for something different. For example, you may decide that all new customers must pay up front for at least three orders before being allowed to go on 30-day or other account set-up, as well as that credit checks must be run for each person or company before they are offered terms.
You should generally ask each client to provide you with at least three business references which can be checked to see if they have a history of making payments on time or, if you prefer, you could instead use a credit-checking service to run their details. This will help to identify any potential clients who could pose a risk of not paying or continually making extremely late payments.
Remind Customers of Overdue Accounts
Oftentimes customers pay their accounts past the due date simply because they forgot all about an invoice, or didn’t actually receive the bill via email or in the mail in the first place. You can work around this issue by making sure that you remind customers of overdue accounts on the very first day that their payment is late. You can either set up your own system to send reminders via email, mail, or phone calls, or perhaps save some time by using an automated online system to do that for you. Many digital accounting systems also include this type of functionality.
If your first follow up doesn’t result in payment being made within a week or so, you should keep on reminding the customer until you do receive your money. These reminders may start out as a simple email then proceed to phone calls after the first or second contact.
Set Up Direct Debits
A good way to save some time and avoid late payments that occur because people forget about invoices or want to pay off other things first, is to set up a direct debit system. This way, you will be automatically paid at the same time each month, and won’t have to keep chasing clients for money.
You can encourage customers to agree to a direct debit system by reminding them that it will save them time, as they won’t have to organize the payment, as well as potentially saving them money because it means there’s no chance that interest would accrue on a bill. You can even consider offering direct-debit clients a small discount for paying their invoices this way.