If you’re a business owner, you know how frustrating it is when clients don’t pay on time. Not only does it affect your cash flow at the moment, but you also worry about how it could jeopardize your long-term relationship with the client. So, on the one hand, you know that you need to be firm when it comes to collecting payments - but on the other, you’re concerned that taking a harsh approach will mark the end of your contract with the client.
Before turning to a collections agency like Fair Capital to collect on any business debts, you can take steps to bring in late payments while making your client feel valued. Here are a few techniques you can use to collect the money you’re owed and keep these customers coming back for business in the future.
Include Deadlines in Your Contracts
When it comes to avoiding late payments, you can stop the issue before it begins by writing up an ironclad contract. Before you offer a new client a contract to sign, you should ensure that it includes payment deadlines. You can also add fees for late payments into your contracts if appropriate. Furthermore, you’ll need to incorporate a few more details, like the date, the parties involved in the specific transaction, the standard payment terms, the expiration date for the contract, and when the contract can be terminated.
It’s essential to be clear in the language used in your contracts. If you don’t have any experience with legal writing, you may want to turn this task over to your in-house legal team. And if you don’t have a team member with the expertise required for this task, you may want to hire a legal writer for the project.
You expected to receive a payment from your client within a particular timeframe - for example, maybe you sent out an invoice thirty days ago, but it’s been over a month. It’s best not to wait and hope that your client will send the payment. Instead, get in touch with them as soon as you realize the delay. That way, you can remedy the issue early on. Reaching out one time could be enough to get your client to pay!
Sometimes, people forget that an invoice is due. If your client is busy, things might be overlooked every once in a while. But a simple reminder email can let them know when they’re running late on payments. And if your client did forget to make the payment on time, they will likely transfer the money to you right away once they receive your reminder email.
Ensure that your invoicing software gives you the option to send clients automated reminders. Furthermore, you should ensure that your reminders are nicely worded - this will likely inspire a better response on the client’s end. SalesHandy recommends using polite language and including all of the details the client will need, such as how to fulfill the invoice and any information they will have to include.
You can also remind them of other resources you have on your website as well as paid services or events that you offer. Don’t be shy. They may have more questions after reading (or in the future). Invite them to leave comments below the post so they stay engaged.
Offer a Payment Plan
What if your client responds and tells you that they don’t have the funds to pay everything they owe at the moment? You don’t have to give up on collecting the payment. Instead, you can offer them a payment plan. For example, they might be able to pay you half of what they owe now and half of what they owe you in a month. If you’ve repeatedly dealt with customers who have been late on payments, you may want to consider offering payment plans as a standard procedure if this is workable with your cash flow needs. This allows customers to spread out payments over a period of time, enabling you to get what you’re owed.
Contact the Accounting Department
What if the right person simply hasn’t received your invoice? When you’re communicating with another business, there’s always a risk that wires can get crossed. For example, you might have sent your invoice to someone in the wrong department, and the person who is actually supposed to pay it might not even be aware that you sent it. If you’re concerned that this might be the case, get in touch with your customer’s accounting department. They would be able to tell you if the invoice came through. Likewise, if it was sent to the wrong employee, you can send over a new copy to the right contact.
No matter which communication channels you use to get in touch with your client, it’s important to always be respectful in your communications. It can be difficult when you’re concerned about your cash flow, but remember, you don’t want to risk losing the relationship with this customer. Exercising restraint is always the best course of action. Double-check all your emails before sending them to make sure that your tone is appropriate.
Reward Early Payments
You’ve finally collected the payments that you needed, but now, you’re anxious about encountering the same scenario again. When you’re running a business, you naturally want to minimize instances like this. So what can you do to dodge this awkward situation month down the line - or even encourage customers to pay early? You can incentivize early payments by offering a discount to customers who pay you ahead of time! Taulia states that while this can lower your overall gross payments, it can increase your cash flow, giving you more financial security. You’ll also have an easier time forecasting your cash flow accurately, enabling you to make smarter financial decisions for your business.
Collecting late payments is always stressful, no matter how you go about it. You know that you need the client to uphold their responsibilities and pay promptly, yet you also don’t want to offend a client who has provided you with long-term business. Approaching the situation with a bit of tact can make all of the difference. With these tips, you’ll be able to navigate these sticky situations and keep your business growing despite the setbacks.
Do you need assistance collecting late payments from clients? Fair Capital can help your business. Get a free quote through our website today to start the collections process.