One of the most uncomfortable situations small business owners face is when good customers fall behind on payments. While getting paid in full is understandably a priority, you need to handle your attempts to collect what’s owed carefully so you don’t risk losing a valued client. Here D2R-collect shares some tips for limiting your exposure to late payments, as well as how to work with customers who are slow at paying up.
Set Clear Parameters
Gone are the days when a deal was sealed with a handshake. In modern business, even the simplest transactions are best completed under clearly defined conditions. By drafting written agreements with clients who make routine purchases, you leave no room for doubt as to your payment expectations.
Executing dated contracts that identify the involved parties. define responsibilities and obligations, set payment terms and penalties, and include termination and expiration parameters staves off miscommunication and conflict. To further protect yourself in the event of late or missing payments, communicate information about your collection process as part of the contract. While referring overdue payments to collections is a port of last resort, be prepared by establishing a relationship with a debt recovery agency that uses effective tools and methods to secure remittance when an agreement is dishonored.
Bill Promptly and Professionally
With studies showing a delinquency rate of 40% in remittances to businesses globally, you’re not alone if your clients are frequently behind in paying their bills. Yet that’s little comfort when you rely on timely payments to meet your own financial obligations.
A standardized billing process is critical to ensuring you’re paid promptly. Start by creating a professional invoice generator that provides pre-made options, and then customize it with your business details, brand identifiers, and other key information. Be sure every invoice you send includes the terms and payment options outlined in the client’s contract. Consider offering discounts or other perks for early payment to encourage customers to prioritize your invoices. Send bills electronically as soon as an order is complete, and use an accounting system that provides a snapshot of outstanding receivables to easily identify past-due payments.
Be Flexible
Ultimately, your goal is to be compensated for the goods or services you provide, even if you receive the funds later than expected. At the same time, you don’t want to engender hostility and risk damaging relationships with clients by becoming unnecessarily aggressive when they’re experiencing temporary cash flow problems.
As soon as you flag an overdue remittance, reach out to the client to discuss options. Consider accepting partial payment immediately and then working out an extended plan to secure the balance, or perhaps negotiate a barter as compensation. By being persistent while offering flexibility, you’re more likely to get paid and foster loyalty rather than destroy a valuable business relationship.
Although unpleasant, dealing with late-paying customers is a necessary aspect of running a small business. While executing clear contracts, issuing professional invoices promptly, and providing incentives to encourage quick payments are all smart measures to reduce the number of delinquencies you deal with, having a collections process in place and a willingness to be flexible with clients in arrears arms you with a broader range of tools for securing payments. Putting a start-to-end receivables process in place makes it much more likely that you’ll be properly compensated for all the goods and services you provide.