Don't let late payments hurt your cash flow. Here's how to proactively inhibit late payments without impacting productivity or client relationships.
Late payments create unnecessary financial stress, especially for small to medium sized businesses that depend on these funds to maintain day-to-day operations and support future growth. It’s not unusual for a few invoices to represent a large portion of a company’s total income, and chasing down these transactions will not only create administrative burden for employees, but also cost companies valuable time and money that shouldn’t be lost in today’s technology-driven world.
To better understand what causes late payments in today’s business landscape, we surveyed more than 3,000 companies and found that in total, 13 percent of all invoices to small and medium sized enterprises are paid late, with 10 percent of invoices written off as bad debt. This might not seem like a big number, but in the context of how much every dollar means to a smaller organization, it does have an impact in a business’s ability to plan ahead. Respondents explained that late payments negatively impact their company’s ability to pay staff and suppliers. That’s a scary repercussion for anyone writing or receiving a paycheck.
The survey also found that even if a waiting recipient knew a payment was late, the necessary actions to collect that payment typically aren’t being taken. More than 25 percent of respondents explained that they weren’t “chasing” the payment because they felt it would negatively impact client relationships, and more than 40 percent explained that they had no real reason for not chasing the late payment. Similarly, over 30 percent of those making late payments couldn’t pinpoint a reason for why that payment was late.
Unfortunately, receiving payments on time isn’t always as easy as sending an invoice, and it’s a problem that must be addressed. Here are six tips to end late payments without impacting productivity or hurting client relationships:
1. Set expectations
Establishing payment terms and communicating the importance of on-time payments upfront means that there’s no confusion later on. Don’t be afraid to be up front about repercussions should a payment be made late.
2. Build relationships
Whenever possible, build strong relationships with invoice recipients and make sure they’re going straight to the person who makes the payment. Know who to hold accountable if and when a payment is late.
3. Leverage your sales team
In a similar vein, if you’re having trouble contacting a client, try leveraging the sales team. In many cases, the sales team has formed a close relationship with the customer and can be a big help in getting a response without overwhelming the point of contact.
4. Incent on-time payments
If you're worried about harming a customer relationship when chasing outstanding payments, one option is to explore on-time payment incentives.
Often customers cannot cite a reason for why they made a late payment. With no real obstacle in the way, companies can encourage their customers to pay on-time by offering incentives. Whether it’s a discounted rate, an additional service free of charge or something as simple as a gift card, this could push customers to pay invoices in a timely fashion rather than waiting until the last minute.
5. Automate invoicing and follow ups
It’s crucial that the invoices are out on time if you expect them to be paid on time. Not only does this show customers that you practice what you preach, but it also gives them more time to coordinate the payment on their end. It can also be difficult to keep track of dozens or even hundreds of pending payments. Modern software with automated invoice chasing may seem less hostile to payers and can provide customers with friendly reminders about late payment policies. Above all else, automation ensures that unpaid invoices don’t slip through the cracks.
6. Follow through on repercussions
Finally, it’s important for businesses to follow through on late payment policies when all else fails. If late fees apply after a certain amount of time an invoice goes unpaid, make to enforce your policy. While it can be tempting to make exceptions for certain customers, it's typically best to hold everyone to the same standard. Send frequent reminders before shutting off services, going to collections or ultimately terminating the relationship.
Editor's Note: Considering a collections agency to help with late payments? Fill out the below questionnaire to be connected with vendors that can help.