It can be very frustrating when customers haven’t paid up – especially if you’ve put in a lot of work for them and invested a lot of resources. Not getting paid on time could affect your ability to pay your own bills. Taking action may be necessary in order to get the payment you deserve and prevent cash flow problems. Below are a few tips for dealing with customers that owe you money.
Keep track of late paying customers
It’s important to keep track of your accounts receivable. If you’ve got lots of clients, it could become easy to overlook a late payment. Try to set alerts to help you determine when customers are meant to pay you. You can then check whether individual customers have paid you or not.
Send a reminder
As soon as customers miss a payment, it’s important to send a reminder. Keep it friendly in tone – there are lots of understandable reasons as to why a customer may not have paid you on time. If the customer does not pay or does not respond, send them a second slightly firmer reminder. If possible try to ring them to discuss the late payment. Avoid sending constant late reminders and keep your calm – if you’re too aggressive it could be seen as harassment.
Know when to use a debt collection agency
After a couple reminders, many customers will eventually pay you – or, at the very least, arrange some kind of payment plan. If customers still haven’t paid you after 90 days and the debt is over $1000, you may want to consider looking into commercial collections. A debt collection agency will be able to take over the gruelling process of retrieving your accounts receivable so that you don’t have to worry about it. Debt collectors are trained to chase up debts in a professional manner. Just be wary that you’ll owe them a payment for their service.
Consider invoice factoring
If you’ve got outstanding invoices, it’s possible that you may not be able to pay your own bills. This can result in a vicious cycle of debt. Invoice factoring involves selling your outstanding invoices. The invoice factoring company pays you about 90% of what you’re owed and then takes over the role of chasing up your late payments. It’s a way of getting paid most of what you are owed so that you can maintain a healthy cash flow and cover your own bills.
Protect your business against future late payments
Prevention is the best defence against late payments. Firstly, consider whether you need to credit check new customers – this could prevent you from taking on customers who are renowned for not paying on time. Secondly, make sure your customer contract clearly states when payments are due and outline any action that you’re legally obliged to take if they don’t pay on time (such as adding interest). It’s worth sending payment reminders a couple days before the payment is due to help remind customers who may genuinely forget. In some cases, it could be worth setting up early payment incentives, such as discounts if customers pay before the deadline.