It’s not easy to predict which customers will pay their invoices on time and which will not. Here are four steps to protect your business from late paying customers.
Quick takeaways if you’re in a hurry
- Credit checking all of your customers is an important step in protecting yourself from non-payment
- Being organised in your invoicing can ensure that customers have all the information they need to make their payments on time
- Payment terms should be agreed in writing upfront to ensure everyone is on the same page.
Read on: Steering clear of bad debt
(Estimated reading time: 5 minutes)
Dealing with customers who don’t pay their invoices can be a frustrating part of doing business. No business wants to deal with bad debt, but it’s unfortunately it’s more common than we’d like. You can protect your business by creating a robust payment infrastructure. With the right agreements in place and some smart preparation upfront, you can do a lot to protect your relationship with your customer and secure payment. Minimise your risk by following these simple steps.
1. Be cautious
Whether you already know your customers or you’ve just met, it’s natural to want to trust the people who buy your product. The problem is that that could end up costing your company money in the long run – or even put your finances at risk.
Credit checking new and existing customers up front is a simple way to make sure that you are aware of any risk that there could be problems with payments. Unfortunately if a customer has had problem paying their bills in the past, there’s a risk that this could happen again. Knowing their credit status will allow you to decide if you want to proceed with a relationship of whether the risk is too high.
Once you’ve completed the credit check process, keep your files up to date. If you’re concerned that one of your customers may have had a change in circumstance you can always repeat the credit check so that your information is current. Or you may like to schedule in updating all your files regularly so you can keep abreast of any issues customers are having.
2. Be organised
One of the most effective ways to ensure you receive payments on time is to be organised with your invoicing process and make sure your customers never have to wait. If you haven’t already got a system for issuing invoices then it’s worth setting one up – even if it’s only a template it will help you get your invoices out on time.
Consider introducing incentives for early payment or penalties for late payment. By including these details in your payment terms upfront you can ensure your customer is clear on the details. You can also repeat the information on your invoices and follow up with a phone call.
It’s important that you make time to chase payments that are late – even if you’re busy or your company has good cash flow. If you allow payments to run late without following up then you will create a perception with your customers that payment does not need to be made on time, which could cause issues in the long run.
Be disciplined with information by setting up and maintaining a database of your customers. This should include payment dates and information on outstanding payments, so you can easily identify who needs a phone call or customers that are repeatedly late with payments.
3. Be legally smart
Getting all your legal documents set up and organised up front means that you and your customers will be on the same page and sets the ground rules for managing payment. Terms and conditions of purchase are useful to define your requirements up front.
Always get your payment terms agreed in writing with your customers. This makes sure everyone is on the same page and gives you legal support should you need it.
4. Take steps to recover debt
Managing the invoice cycle requires really good communication on your part. Being proactive will help you to get on your customer’s radar to try and support getting paid made on time. Make contact with your customer before and after payment is due.
Review outstanding payments based on the number of days overdue and reason for late payment. Having a good understanding of both should create a clear path for how to recover the debt. Don’t be afraid to call in the professionals if your customers fail to pay after repeated reminders.
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