Running a small business often means splitting your time between the things you love doing and things that you don’t. One of the things a lot of our merchants have highlighted as the latter is chasing customers for payments.
According to the Export-Import Bank of the United States (EXIM), 60% of invoices are paid late. This means hours of awkward conversations asking for money, and repeated phone calls, emails, and reminder letters - time which could be much better spent building or improving your business.
What’s more, with every call or email, your profit and the time you have to spend doing the things you love, diminishes. You might even end up spending more time chasing payments than you spent on the work in the first place.
To help you spend more of your time on the things you love, we’ve put together our top five tips for dealing with late payments.
1) Set your terms and expectations at the start
Make sure your customer is clear on your payment terms right from the start – highlight what they need to pay, when they need to pay it, and whether there are any penalties for late payments, and then display it obviously on each invoice.
This will help to avoid customers paying late simply because they weren’t sure when they should pay. It will also help make conversations about late payments a little less awkward as you’ll simply be reminding them of the terms rather than surprising them with penalties or deadlines.
Tip: Consider shortening your payment terms. Most companies tend to use 30 day payment terms but you don’t need to. It could be worth discussing with the customer upfront to try to reduce your terms and stop your invoices being left on the backburner. Asking for payment sooner means you’re more likely to stay near the top of your customer’s to-do list.
2) Send out invoices promptly
Making sure you invoice immediately can help to ensure you are paid on time. Where possible include:
Your company name, logo, registered address and company number (if applicable)
Your terms and conditions
Details of the service or product
Any reference or order number
The amount due
The invoice date and number
The customer’s name and address
Your payment details
If relevant, how much tax has been charged, your tax registration number and a tax breakdown for each item on the invoice
Make sure that this information is all accurate - any mistakes could mean the invoice is sent back and payment is delayed.
3) Make it as easy as possible to pay you
Paying your bills isn’t always easy – not only do you have to remember in the first place but you also need to write and send off the check, spend time waiting to pay over the phone, or make sure you’ve got everything you need to log onto your online banking.
Consider how you can make it easier for your customers to pay. This could mean sending reminders at a point when they can actually pay, letting them pay in a way that suits them, offering ways to pay you there and then, or even just making sure you always include all your payment details in reminders.
4) Talk to your customer about why they’re not paying on time
Good communication with your customer is key to avoiding late payments. It may be that your customer has a real reason for not paying you on time. By speaking to them early on you may be able to work with them to solve the problem perhaps by doing something as simple as changing the payment date or offering instalments.
If you’re collecting recurring payments, consider using an automatic payment method like standing order or ACH debit. Once an ACH debit or standing order is set up, your customers no longer need to worry about remembering to pay you each time, as you can take a payment as soon as it’s due. What's more, you won't need to waste any more time chasing for late payments. It's a win-win situation for you both.
5) Give your customers regular reminders
Often, all a customer needs is a reminder to jog their memory. You could try calling them a few days before the payment is due or follow up late payments with emails and calls.
Tip: Automating your reminder emails can save you time and effort. With some cloud accounting software, you can write your unpaid invoice reminder email and then set this to be sent out automatically whenever a payment becomes overdue.
What if none of this helps?
Rather than automating your reminders, you could automate the whole payment process. With ACH debit, payments can be taken automatically whenever they’re due, meaning that you won’t need to worry about late payments.