Getting paid is a chore, and often one that you don’t plan for. Customers will surprise you with excuses and delays, and those may severely influence your cash flow. So, what are the key things to remember so you can prevent late paying customers?
There Is No Such Thing As 100%
Unfortunately, this is reality – some customers won’t pay. Whether it’s because they’re in disagreement with you, don’t have money or are generally irresponsible usually doesn’t matter – you’ll eventually need to use a trusted third party to get these ones to pay. There’s never 100% payment rate unless you’re not really growing, and can afford to spend a majority of your time managing credit risk and chasing late customers.
So How Do You Prevent Late Paying Customers?
Preventing late payments requires following a structured process to make sure that you remain top of mind for your late customers, dealing with their excuses, and countering them until you get paid. Specifically, pay attention to the following:
Be exclusive with giving out credit. It’s easy to allow customers to pay net plus and get the sale, but you’re not really compensated before the money is in your account. Being too liberal with granting credit, especially on large amounts or with customers who are new to you, can prove detrimental. Beware of new customers, those without a long established history, and ones that try to rush you into large projects and expenses while asking for credit.
Be prompt in issuing your invoice post completion of a job or with following up on late payments. Those who prevent late paying customers are the businesses who keep reminding their customers that they exist, that their outstanding balance exists, and that they expect to be paid.
Be frictionless in your methods of payment. In order to prevent late paying customers you need to be able to charge credit cards, accept wire transfers, and deposit checks. The more payment options you have, the better your chances of getting paid.
Be polite in your communication with your customer. They might not pay you today, but end up being a valuable long term customer if you just work with them through their current situation. Your goal with your receivable management process isn’t only to prevent late paying customers, it’s also to retain relationships with the most valuable ones. Don’t let a temporary situation ruin a beneficial long term relationship.
Be ready to escalate if your demands aren’t met. At the end of the day, you may invest a lot of effort in order to prevent late paying customers, but you are (most probably) not an expert. Sometimes you need external help to get the last mile, or negotiate for you, or just diffuse a loaded situation that was aggravated by emotion. Using a third party increases your chances of recovery even before customers are sent over, just by using them as a “bad cop”. Having that power on your side helps your recovery.
It’s not easy to prevent late paying customers, but following a structured process, a few tips, and using a strong partner can get you paid much sooner than you usually do, and contribute directly to your cash flow. Don’t be afraid to attack this problem head on – it’s critical for your business’s success!