Do you have customers who never pay on time? When you tolerate overdue bills, you are effectively financing your customers and holding back on financing your working capital. If this happens, it will have an impact on the lack of working capital which can threaten the survival of your business.
Here are tips to help you collect bills faster and deal with late customer payments.
Be clear about payment terms
No sale is final until you receive payment. Therefore, you must communicate the payment terms to your clients and ensure there is no room for misunderstanding. Make invoices as clear and detailed as possible, including not only your terms but also interest penalties for late payments.
Issue invoices faster
The sooner your customer has a bill, the sooner you will be paid. Therefore, you must arrange payment at the time of sale. And make sure if you create an invoice it must:
Make sure the bill goes to the customer as soon as you ship or finish the job.
If you’re working on a job of great value, consider negotiating an upfront payment. For example, you can request a deposit at the time the order is made and then a percentage of the payout on various agreed milestones.
Explore mobile billing technology
For many businesses, a mobile device, such as a smartphone or tablet, can be an advantage to speed up bill collection. That’s because they allow you to collect or issue invoices directly. Also consider setting up your business to accept credit card payments and e-transfers from slow payers to speed up the payment process.
Track unpaid bills
As part of a cash flow planner, you must monitor your client’s payments. If you do this, then of course this will help you track the cash that comes into your business and follow up if your clients are late in making payments.
Develop relationship with your customer
Know who handles accounts payable for your customers and build a good relationship with them. Make sure that your invoice goes to the right person in the right department. This is especially true when your business is working with a large company, where your invoices may get lost in the shuffle.
When issuing an invoice, it is best to first, inform that the client has received it. After 30 days, follow up and ask if there is anything you can do to speed up the payment process. Don’t be shy about chasing after debts that are due and don’t wait.
Call slow paying customers and ask them to pay. If 30 days have passed and you haven’t heard from your client or received a payment, it’s time to call. Phone calls are harder to ignore than letters, and in many cases talking to you can encourage clients to reveal what’s really preventing them from paying.
Offer early payment discount
Good customer and supplier relationships can help you speed up receiving payments from customers. In addition you can offer a 1% discount for example to customers if they are willing to pay within 10 days. But remember, discounts can be used only if you need to get cash fast.
Consider hiring a collection agency
This step is the last step you can take if you don’t get a solution from your customer payment. You can hire a collection agency. Collection agencies usually take a percentage of the money they recover for you, sometimes they’ll buy your debt straight away and handle the collection themselves. In either case, you’re likely to only get a fraction of the total.