No matter what kind of business you are in, undoubtedly you have had at least one late payment. The problem is as old as time itself, but unfortunately it has become even more common during the economic downturn. People everywhere are having cash flow problems, so almost every business has to wait longer for customers to pay. In turn, each business takes longer to pay its suppliers, so there is a vicious cycle going on. Even the customers you felt like you could count on may let you down, so don’t count on your good relationships to get you through these difficult times.
What can happen with late payments?
If you end up dealing with a lot of late payments, you could end up going out of business. But never fear. That’s the eventual outcome if you fail to act. Late payers become bad debt (a.k.a., they don’t pay you ever) if you don’t take action on the matter. Another big problem is continuing to provide your services or goods to someone who has not yet paid you but is also asking for more time. Every month their debt just gets larger and larger until they end up becoming a bad debt. That little $250 invoice you weren’t so worried about at first balloons into a $5,000 invoice if it is allowed to drag on for a long time. Carrying such a massive liability on your business can have a catastrophic outcome.
Taking Protective Measures
There are several things you can do to protect your business against late payers, including:
- Send that invoice out on time.
- Stay after customers and “remind” them about the payment the moment their invoice is overdue. Call them to ask when they will be sending payment. At this point, just be firm but not overbearing.
- Create a process of reminders to keep your invoices organized. Each reminder should be slightly more urgent than the next. The ultimate end is to put that unpaid invoice into the hands of a collection agency.
- Run a credit check on any new customers trying to open a large account or place a large order with you. Just keep in mind that some customers are new and simply don’t have a credit history yet.
- Avoid giving any one customer too much credit over too long of a span of time.
- When dealing with large sums of money, get most of the money up front.
- Make sure every customer knows your payment terms by listing them in bold print at the bottom of your invoices. This should prevent that old standby excuse “the check’s in the mail.”
- Use contracts that are very clear about your payment terms.
- Watch payment due dates like a hawk, making contact with the customer the day after payment is due if it has not arrived yet. The longer you wait after the payment due date, the more your chances of being paid for that invoice will diminish.
- Remember that the term “acceptably late” doesn’t really mean anything. You may not want to upset your customers, but your business and your livelihood is more important than any one customer.
- The longer you allow late payers to go on, the later they will continue to pay you. They will expect that paying you late is a norm that you are willing to accept, but you need to show them in the beginning that late payment will not be tolerated.
- Just remember that if your customer does go out of business, your chances of getting any money back on that invoice are basically zero.
Let the experts at Acceler8 help you figure out the smart way to handle late payers in your business.
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