Tackling late invoices is crucial to any enterprise’s sustainability. Otherwise, the business’s cash flow will take a hit, disabling the company from taking on new projects, investing in new resources, and meeting operational costs.
However, getting clients to pay on time isn’t always a walk in the park. The last thing companies want to do is jeopardize the relationship with their customers and get distracted from other critical business tasks while dealing with late payments. Hence, it’s necessary to handle it smartly and with care.
Here are some time-tested practices to prevent and handle late invoice payments effectively.
Background Check Customers
Knowing your customers is one of the proactive measures to prevent the likelihood of late payments. Run a credit check on them and request trade references to get a sense of their past payment behaviors. Doing so likely saves you the trouble of chasing overdue invoices.
If the new customer has recurring late payments or bounced checks in their history, consider going ahead with shorter invoice terms first. For existing clients, watch out for constant missed payments, unsigned checks, and defaults. If these happen, establish direct communication with them right away.
Send payment reminders politely to avoid putting your long-term relationships with your customers on the line. Remember to contact them in writing and include all relevant information. This can serve as proof of contact should late payments advance to a claim.
Set Terms and Policies From the Start
Don’t just inform customers about your company’s payment timeline, late payment penalties, accrued interest on an unpaid invoice, and other related policies right from the start. Instead, be sure that they understand everything. Then, to prevent confusion, communicate your company’s terms and policies in brief, concise writing.
Ideally, get customers to sign in to ensure they understand every single detail. This written agreement proves that customers know your company’s payment terms and policies. It can also serve as good evidence should any case get to the stage of legal action.
Invoice Correctly and Promptly
Companies are to blame for late invoices as well. Invoicing errors, such as inconsistencies in clients’ contact information, purchase details, or incorrect payment due dates, are companies’ mistakes and frequent contributors to long payment cycles.
To prevent unvalidated invoices, double-check every single detail before invoicing. In addition to that, simplify payment terms and control other sources of complexity. You can also opt for a fully automated e-invoicing tool to limit the opportunities for errors and speed up the payment process.
Send invoices not only accurately but promptly too. Send them out as soon as the products or services have been provided or delivered. The faster the invoices are sent out to the customers, the sooner payment will be received.
Make Payment Options More Flexible
Offering multiple payment options is a way to meet customers’ needs and satisfaction. For example, allow payments through virtual wallets, credit and debit cards, direct bank deposits, or installment-based payment plans. Letting them make payments through their preferred method can help them pay conveniently and on time, shortening the payment cycle.
Offer Early Payment Discounts
Granting early bird discounts is a common strategy to ensure timely payments from clients and build loyalty in the long run. One example of it is 2/10 net 30. It’s a trade credit where customers can get a 2% discount if they fully pay in ten days. Otherwise, they’ll have to pay the full invoice amount on or before the usual credit period of 30 days without a discount.
Hire a Collection Agency
If you’re really struggling with chasing late invoices, a collection agency might help. They secure payments from late-paying customers. To collect your receivables, they gather records of your customer’s assets to see if they can make a payment and use unique databases to track down customers.
There’s no definite time to hire a collection agency since every company is unique. However, dealing with the aging of accounts receivables or someone’s debt when passed away could point you toward a debt collector’s services.
Seek Help From a Mediator
If customers don’t hold up on their payment agreements or communicating doesn’t work, don’t take a claim to the small claims court immediately. It’s much more affordable to hire a mediator first. They can resolve disputes without going to court.
Mediation can cost as low as $30 to several hundred dollars, depending on the complexity of the dispute. In contrast, taking a case to small claims costs anywhere from $100 to $2,000 if you represent yourself in court. Given the responsibilities and liabilities, it takes at least another $2,000 to be represented by an attorney.
Final Thoughts
Timely collections of what companies rightfully owe are as paramount as making any business deal. The key to it lies in systematic and consistent credit management measures. These practices should underpin relationships with every customer to ensure constant cash flow without burning bridges.
