More than 90% of businesses have at least one invoice overdue. To the majority of SMEs, even a single overdue payment could be critical in disrupting operations and breaking the flow of growth. While late payments can hamper cash flow, another detriment is that time spent chasing customers for payment equals time that could have been spent on business development and growth opportunities. Knowing how difficult late paying customers can be, here’s our top three tips to help you manage and overcome the unfortunate situation of a late-paying customer.
1. Set out clear payment terms
Sorting out payment terms (deadlines and methods of payment) from the outset of a business agreement is key to avoiding any issues down the road. Establish a payment schedule so the customer has no uncertainty around when to pay, or any penalties for paying late. This will also help avoid any difficult discussions about missed deadlines or penalties.
2. Send a friendly reminder and follow-up
Hoping and praying won’t get you the money you’re owed. Don’t be afraid to remind customers of upcoming payment deadlines. Following up on late or missed payments can be time consuming but is necessary; you need cash to sustain your business. Sending a simple email should suffice in both these scenarios, but remember to be professional, yet friendly. You can also set up automated emails as reminders and follow-ups, using your cloud accounting software such as Xero, MYOB or Quickbooks.
3. Attach late payment fees
By outlining late payment fees in the contractual terms and the invoice, you are allowed to charge interest as a late payment fee. While being an extreme measure, this is a productive way of guaranteeing customers adhere to deadlines. You can use this to incentivise “good behaviour” and, to avoid any bad blood, consider discarding this interest once invoices are being paid on time.
For late paying customers and to avoid cash flow disruptions, consider boosting your cash flow with invoice finance. Timelio can give you access to cash locked up in unpaid invoices, freeing up your cash flow and reducing financial pressure. We have fast, highly flexible funding to suit your business, and a friendly, experienced team ready to help. Give us a call on 1300 38 63 63 to find out more.