It’s important to monitor and keep on top of late payments as businesses have been known to suffer or even go under because of the problem. Businesses need to take steps to prevent late payments where possible and take the appropriate action when they occur.
Here are some steps you can take to minimise the problem of late payments.
Set clear payment terms
Make sure that your payment terms are very clear from the start of a project. Your payment terms should be covered in any agreements with clients and customers and also displayed clearly on every invoice you submit.
That way clients know where they stand and no one can come back and say they didn’t know when payment was expected.
Consider credit checks
Some small companies in industries such as construction run credit checks on potential clients before commencing work for them. This enables you to identify any risky clients who may pay late or default and to consider whether you want to work with them.
It doesn’t mitigate all risk, though – sometimes people can afford to pay on time but just don’t for whatever reason.
Stay on top of finances
Make sure you know where your finances are on a day-to-day basis so you can chase up any late payments immediately before anything gets out of hand. There are quick and easy ways to do this. Accountancy software packages such as QuickBooks Pro and QuickBooks Premier, for example, have a company snapshot facility, which will allow you to generate custom reports on how late payments are and who owes you money and when.
These reports will also allow you to identify any customers who consistently pay late. You may want to think about revising their payment terms or re-consider working with them altogether.
Incentivise
In sectors such as construction, some businesses incentivise customers to pay early. This involves offering a discount for invoices that are paid within a certain number of days. Some companies find that what they lose on the invoice is worth it for time and hassle saved and the cash flow advantages they gain.
Be firm
Once a payment deadline has been missed, it’s crucial to chase the payment up quickly.
In many cases, a firm but polite email or phone call is enough – late payment is sometimes the result of inefficiency rather than inability to pay and a gentle prompt can nudge clients along. Don’t be fobbed off by excuses and unnecessary delays, though. If payment is still not forthcoming, you may want to consider formal debt recovery options.
Late payments are unlikely to go away completely any time soon. However, with good planning and procedures you can minimise the negative impact that they have on your small business.
Do you have any tips of your own on managing late payments?
