It’s a reality of business that, every now and again, you’ll come across customers who either can’t, won’t or have forgotten to pay. But, rather than reacting emotionally, it’s almost always in your better interests to think carefully and proceed cautiously – the way you handle a tardy customer can have consequences for your business in the long-term.
Why It Matters
In any business, large or small, cash flow should be amongst the most important of your considerations and the timing of payments can impact your bottom line. When reviewing your accounts, consider that, as Bureau of Digital notes, tactics like tweaking the payment expectation and strengthening your collection policy ultimately leads to more available cash at earlier dates. This, in turn, contributes to the accelerated growth or survivability of your business.
To help you monitor the effects of late payments, it’s worth finding a software that helps you to track your financial wellbeing. Tools such as Quickbooks Online Advanced provide real-time reports, income statements, project profitability and allow you to automate your workflows – essential functions for any business. It’s an ideal financial software for consultants and others who offer professional services.
It’s true that some customers are either negligent or have ill intentions but this is less common than you’d expect. Most of the time, you can speed things along just by clarifying the paying process to ensure that customers understand the numerical quantity, method and terms of payment. It will also help to offer different payment methods – bank transfers, C.O.D., cash and online payment sites.
As a small business, you may be wary of scaring customers away with bullishness but as the professional accounting office of Holloway and Millikan explain, laying out clear payment terms from the outset is a fair and important step in any transaction. Payment terms can prevent misunderstandings and help provide legal covering when committed to writing. Within your terms, don’t be afraid to lay out a set number of days and, if you feel it’s appropriate, spell out any late payment fees.
One of the best ways to avoid late payments is to encourage early ones. This is a surefire way to improve customer experience and keep your cash flow running hot, so that your business is able to expand at a faster rate. Best of all, payment incentives are shown to increase customer loyalty and help you maintain profitable long-term relationships.
How you go about offering incentives is entirely up to you. They may be specific to your type of business or they may be tried and trusted methods – discounts, better credit terms, access to exclusive events, learning opportunities, etc. However you decide to approach an incentive scheme, make sure that you’ve covered your maths and you aren’t offering discounts that harm your bottom line over the course of a business year.
If all else fails, it may be time to chase up your customer. Remember, this needn’t be a stressful process. If you’ve set out an automated plan of action and have pre-written templates, then you won’t be writing from a place of emotionality. Make sure to write these ahead of time and use friendly, concise language so they’re ready to be sent off at a moment’s notice.
Your last resort for a late paying customer is legal action, but this is almost always preventable. On the occasions where this does happen, you’ll need to make sure you have all bases covered and a legal expert consulted before you ever send off a warning email. Remember, by escalating the situation to court, you are almost certainly losing a client.
Late payments can prove destructive for small businesses but with the right preventative action, you can minimize their likelihood and pave the way for an amicable working relationship moving forward.