Tips For Collecting From Late Paying Customers
Small Business Ombudsman, Kate Carnell, has stated that the number one problem for small business is the potentially disastrous effect late payers have on cash flow. Compounding the issue, new research has revealed more than 40% of Australian businesses were late paying their bills in the first quarter of 2017.
Cash flow problems are a major concern as businesses can begin to struggle to pay staff and suppliers, and ultimately may find themselves facing insolvency. There’s no doubt that collecting unpaid invoices is a critical element of running a successful business.
So what can be done to improve a situation where cash flow becomes tight thanks to funds being tied up in slow-paying accounts? The answer is to implement a robust collection system which is simple, yet efficient.
Check credit ratings
The best thing a small business can do to protect itself from bad debt is to simply avoid taking on customers with a bad payment track record. Potential customers can be screened using a commercial credit history check – available through a credit reporting agency for a relatively small fee. It is still possible to work with a client who doesn’t have a great payment history, so long as payments are made in advance or on delivery, and no credit is extended to them.
Obtaining the credit rating of potential customers is an important way to assess their typical payment behaviour – are they always on time or always late? This information helps you forecast and manage cash flow.
Have a clear policy
Issue a well-drafted contract covering deliverables, timeframes, dispute resolution procedures, and payment terms, including penalties for late payments.
Issuing an acceptance letter, which sets out the scope of the work and confirms your customer’s satisfaction can also be effective. Your customer signs off on this on completion, minimising any potential disputes.
Incentivise timely payments
It is not uncommon to offer an incentive for early payments. By offering a discount for early or on time payments, you may reduce the amount of outstanding debt you have to chase.
Implement a system for following up
Have defined timeframes for following up on unpaid invoices. Schedule periodic reminders to follow up at 3 days, a week, 15 days, 30 days and 45 days late.
Once a payment is officially late, send a polite reminder letter in case the payment has merely been overlooked.
If no payment is received, try calling your customers. Sometimes a chat will prompt an explanation on what is causing the delay.
Don’t leave it too long before beginning to chase payment
It is recommended that you wait no longer than one to five days past due before beginning the collection process and attempting to settle payment. Do not make the mistake of avoiding confrontation or simply allowing time to pass because you are too busy.
Offer alternatives
You may consider offering a payment plan, where your customer commits to paying at least part of the invoice by a specific date. Another option is accepting a partial payment.
Delegate the collection process
If it becomes clear you are dealing with a non-paying customer, you may need to call on outside help. A debt collection agency experienced in negotiation can professionally deal with overdue and unpaid invoices, allowing you to focus on running your business. Depending on the value of the debt, it may be necessary to take legal action.
Stay professional
Stay polite and professional at all times. If there is a dispute, make a genuine attempt to resolve it – this can salvage the customer relationship. Consider how valuable the customer is to you, and whether they are likely to recover from what may be a temporary issue. Your aim is to collect payment without alienating your customer, so it’s important to remain friendly and service-oriented, as well as firm and persistent.
If you have an outstanding debt that needs to be collected quickly, please get in touch so that we can fast track your payments and help remove the day to day hassle that comes with debt collection.