But the new year is a great chance to make a positive change to your business, including reducing your late payments. In the spirit, we have a few things that can make the process of chasing down late payments go a little bit smoother.
Know Your Customer
It might sound like a bit of a cliché, and you might think it has nothing to do with late payments, but it really does pay to have a good relationship with your customers. If you have invested time into getting to know the client, or a representative of their business, you can see two payment benefits. The first is that it will be much easier to sort out payment terms in advance, reducing the amount of push back you get on the important points (more on that later). The second is that it will make chasing any invoices that do fall overdue a much simpler process. It’s no wonder that businesses with good customer relationships often see quicker repayment times than those who don’t.
Establish Control With Pre-Agreed Terms
Before any work is carried out, it’s important to set out your payment terms and have everyone involved agree with them (preferably in writing). By doing this, you are not only establishing a level of respect and authority, but also giving yourself some control. You can now pre-empt cash flow fluctuations within your business, and decide on an approach to workflow that’s right for both your business and the client.
Invoice Correctly And Promptly
Anything that slows the payment process down, or distracts from it is bound to cause payment problems. So when it comes to invoicing, it pays to be organised. Make sure all of your invoices are raised correctly, addressed to the right people and for the right amount the first time around. If you agreed a specific time to send your invoices – make sure you stick to it! Invoicing errors are one of the most frequent contributors to long payment cycles and late payments. So while it might take a little extra time to double check – it’s worth doing when the alternative is constantly chasing late payments.
Start Chasing Quickly
Obviously if you’ve provided a product or service to a client, you need to be paid for it. A big mistake many businesses make is not chasing late payments right away. Whether that’s because they don’t realise it’s late until a few days later, or they feel it’s rude to chase after one day and would rather be nice and give the clients more time. But this only leads to a longer payment cycle, and you go longer without the money you are owed in your account. So when a payment becomes overdue, you should respond swiftly. But that does mean you need to be a bit lighter with your wording, at least at first – you might find that trying the heavy handed approach (like applying statutory interest) right away will only make things worse.
Of course, the nature of your client and the industry may affect some of these things. But in most situations, it helps to have a good relationship with your clients, lay out payment terms, chase swiftly, and always have a back up plan to avoid those long payment term offers. For example, you might want to offer some form of discount for faster payments, or look into invoice financing to help with lumpy cash flow. For more information about chasing payments, or support in your debt collection journey, just get in touch with Debtcol today.