When you’re running your own small business, one of the most frustrating challenges you’ll face is late paying customers. While there’s no doubt late invoices affect your cashflow, they can also wreak havoc on other areas of your already-busy work life.
You simply don’t have enough hours in the day to spend chasing-up payments (even if you are great at time management), nor do you want to run the risk of ruining a good business relationship because of a client not paying on time.
So, how can small business owners deal with late paying customers?
5 steps you can begin implementing today.
1) Send an overdue invoice reminder email
We all lead busy lives and sometimes a looming payment deadline will simply skip a client’s mind. In some cases, all that’s needed from your end is an invoice reminder email. This is a great way to politely ask someone to pay their bill without having to have an awkward conversation regarding late payment. Alternatively, some cloud accounting software can generate and send automatic email reminders until the invoice has been paid. This saves you additional time and effort.
2) Speak to the client directly over the phone
If your email reminders are going unanswered and payment still hasn’t been received after a week, it’s time to pick up the phone and speak to the client directly. Not everyone feels comfortable discussing late payments, but if you’re dedicated to being paid for your products or services, you’ll have to summon the courage. Ask the client when they plan on making the payment and if there are any concerns preventing them from paying their bill. In some cases, you’ll find adversities such as sickness or financial hardship are to blame. Which brings us to our next point…
3) Reach a payment agreement
If a client is unable to pay the entirety of their invoice in one go, it can be mutually beneficial to agree to a payment plan instead. You can do this by breaking the total amount owing into weekly or monthly installments. Just be sure to outline your payment policies (including late fees, methods of payment, etc.) to prevent further late invoices.
4) Seek legal action
Seeking advice from a lawyer really is a worst-case scenario, but it’s something that must be done if the client remains unresponsive or refuses to pay their invoice. A lawyer can send a formal letter of claim, usually prompting the client to pay to avoid further legal action. They can also advise you if the matter needs to be taken to court and how you must proceed.
5) Put extra measures in place to prevent late paying customers
Prevention is key, as they say. Rather than constantly dealing with late paying customers, analyse your business to see how you can prevent further unpaid invoices. For example, how do you accept payments? Can you add any other ways to collect money online (such as PayPal, Bpay, or Direct Deposit?). Do you charge a late fee? Is this outlined in your payment policies? Take all of this into consideration from now on.
There you have it. 5 steps you can put in place today to deal with late paying customers. As a small business owner, how do you cope with clients not paying on time? We’d love to hear from you in the comments below.