Image via Pexels
Many businesses struggle because customers aren’t paying their invoices on time. The late payments essentially create a financial hardship and hinder cash flow, limiting the company’s ability to operate effectively. That’s why addressing late payments is so critical.
The issue is, if you don’t handle late payments the right way, business owners may inadvertently damage customer relationships. Luckily, there is a way to prevent that. Today, Diamond Ethical outlines some ways to handle late payments without harming customer relationships.
Invest in the Right Software
Having the right software solutions can make it far easier to handle the financial side of your business, including payment collection. Choosing a solution that includes invoicing and payment processing can streamline this part of your operation. Not only will all of your customer invoices be in a single place, but you’ll be able to accept a wide array of payment options.
Also, don’t forget to incorporate software to authenticate bank account information, allowing for prompt retrieval and secure transfers over various platforms. Many payment processing systems support credit cards, debit cards, ACH bank transfers, e-checks, and more. Numerous payment options increase the odds that you’ll receive payments promptly, so it’s worth finding a software solution that offers the broadest selection possible.
Have Well-Defined Payment Terms
Having well-defined payment terms is crucial if you want to ensure prompt payment. Customers may not pay on time if they don’t know what’s expected. As a result, you want to be incredibly clear about any requirements, listing them in several places.
Exactly where you need to outline your payment terms can vary. At a minimum, you’ll want them on the invoice. For subscription or long-term business arrangements, including them in the contract is also wise. If you allow online ordering, present them during the checkout process, too.Usually, you’ll want to mention more than the due date in every location. Also, discuss what forms of payment you accept, the currency you use (if your company is international), and any penalties for lateness. That way, it’s all spelled out clearly.
Follow Up on Invoices Correctly
Ideally, your first follow-up on an unpaid invoice shouldn’t occur when it’s late. Instead, you want to send a reminder – using a friendly and helpful tone – a few business days before the invoice is due. That way, if a customer simply overlooked the invoice, they’ll be alerted to the situation and can handle it quickly.
Whenever a customer is late on a payment, you want to follow up promptly. Let them know that the due date has passed and inform them of any penalties that were levied. Also, discuss other penalties that could occur if what’s owed isn’t received and provide a set of precise instructions on how to send in a payment to avoid future fees.
Incentivize Early Payments
Offering an incentive for early payments can help reduce the number of late payments you encounter each month. When you offer a discount or credit for payments received before the due date, you’re promoting good habits among your customers. Plus, since it feels like a reward, you can boost loyalty, too.
Whether you want to offer a discount or credit may depend on your business type and how frequently customers purchase. If the nature of your offerings means that purchases are widely spaced, consider a discount on the existing bill. It’s straightforward and won’t require long-term tracking.
If your customers tend to make new purchases regularly, consider going with a credit that they can apply to their next purchase. That way, you’re still offering a usable reward, but you also encourage the next purchase, increasing the odds of future sales.
Diamond Ethical is a 501(c)3 non-profit organization and technical advisory firm here in the Great State of Texas that helps businesses get access to a minimum of $100,000 in funding. They could come from every walks of life with some financial needs like business funding, marketing personal financial strategies, credit boost, lead generation and business development. Call (210) 900-3706.