A majority of small business owners struggle with late-paying customers. In fact, the National Federation of Independent Business states that 64% of small business owners have unpaid invoices with a repayment period of up to 60 days. Late payments can badly cripple your business, especially if you can’t afford to wait for months before you can receive funding. There are different ways to deal with late-paying customers, such as invoice factoring, persistent follow-up, as well as other measures. With that said, here are six effective ways to manage late-paying customers:
1. Assess Your Invoicing Process
The first step in managing late-paying customers is to make sure you have an efficient invoicing system. Assess your current invoicing process and see if there’s anything you can improve on. Make sure to double-check the following:
- Your customer’s financial history
- The payment options you currently offer
- Other payment alternatives that can make payment easier and faster
- How long it takes for your clients to receive their invoices
- If the spelling of the terms as laid out on your invoice are correct.
If there are any discrepancies, you’ll have to make the necessary changes to your invoicing process. Remember that when you assess your invoicing system, you need to put yourself in your clients’ shoes. Your clients need to understand how to pay for your services clearly.
Additionally, it’s important to double-check the names, dates, amounts, and other important payment information. Make sure everything is spelled out correctly to avoid confusion and payment delays.
2. Send Reminders Days Before the Payment Due
Some customers may forget upcoming payment dues, so they may find it helpful if you can remind them a few days ahead of time. You can give them a call, send them a text message, or email them a standard message to let them know. Your customers will most likely appreciate the reminder because it keeps their cash flow in check.
3. Follow Up on Delayed Payments ASAP
If your customer missed paying on the specified date, make sure to contact them as soon as possible. You can develop an efficient system on how to contact your clients. For instance, sending an email the day after the due date is a great idea. If they still haven’t paid, you can follow up with a phone call a day or two after the email. Additionally, you can automate the process using customer relationship management (CRM) software that allows you to send out scheduled and automated reminders.
4. Be Mindful of Your Temper
No business owner likes delayed payments. However, you need to be mindful of your temper and keep anger in check when dealing with late-paying customers. Your goal is to identify the crux of the issue and figure out solutions on how to get paid. There are different ways you can go about that, but you need to consider a number of factors:
- How valuable that client is;
- How they can recover from the delay and the likelihood of them becoming a regular paying customer
- The amount of money they owe and how much you can most likely recoup
Some of the solutions include offering an installment plan to your clients. In some cases, you can even charge an interest fee. However, this may make more difficult for them to pay you back. Keep in mind the main goal is getting all of your money back.
5. Apply for Invoice Factoring
Invoice factoring is the easiest way to avoid cash flow problems and late-paying clients. This form of financing allows you to sell your outstanding invoices to lending companies. You’ll receive 80% to 90% of the total invoice value within 24 hours or less, which gives you the working capital you need to bridge cash flow gaps. In this way, you’ll have access to immediate funding and you don’t have to wait for your invoices to get paid.
Furthermore, the lending company can take on the task of collecting payments from your clients so you don’t have to. Invoice factoring enables you to secure working capital, making it easier for you to grow your business.
6. Get a Lawyer
If your customers still haven’t paid after sending out reminders, it may be appropriate to take legal action. You can ask your lawyer to write and send a demand letter that threatens your clients with legal action if they don’t immediately repay the debt. If your customers can’t be bothered by follow up calls and emails, sending out a demand letter may change that.
Manage Late-Paying Customers with Invoice Factoring
Is your business struggling with late-paying customers? Well, you’re not alone. A lot of businesses often find their business short on cash because of unpaid invoices. In situations like these, invoice factoring is a great way to beat cash flow gaps because of late payments. With the cash you get, you can easily get the payments you need and inject cash flow into your business.