Idea Box: Ways to Get Paid by Trouble Accounts
Many companies deal with late-paying customers, but there are strategies that companies can use to receive payments on time.
Date Posted: 12/1/2013
Customers that don’t pay their bills on time are one of the biggest problems that many small businesses face.
When money has gone into completing and delivering an order on time but the payment comes in after the due date, it can leave cause significant cash flow problems for a company. So what should you do when customers don’t pay their bills on time? There are many options available.
• Send reminders with a new copy of the invoice shortly before it is due. Sometimes a friendly email or call a few days before an invoice becomes overdue can be all the prompting that a customer needs to pay up.
• Offer discounts. These can be tiered discounts based on the order total and for how quickly payment is received. A 5% discount for paying upfront or even a 2% discount for paying within a week can be a successful incentive to many customers.
• Schedule payments. This approach is especially suited for large or specialty orders. Break the total into several smaller payments. These could include a down payment before production begins or 25% when the order is halfway completed.
• Require payment on delivery. This payment could be a partial or full payment for an order. This could be done by having the delivery driver pick up a check or equipping drivers with smartphones that have credit card scanners.
• Charge penalties. Knowing that interest will be added to an invoice that has gone past its due date is a big deterrent to late payments. Companies that choose to use penalties should be sure that the penalty policy is clearly stated upfront to avoid misunderstandings or accusations of devious business practices.
• Build relationships. It’s much easier for a customer to feel fine with sending a late payment to “Pallet Company X” than it is sending a late payment to “Bob” who knows them by name and has helped them with their last minute orders.
• Do some research. When taking on new customers, running credit checks will show if they have a history of late or non-payment.
• Work through a broker. While you may not make quite as much money, collecting from a lot of little accounts is no longer your problem. All you have to do is stay on top of the broker, which makes it much easier to manage cash flow and receivables.
Any single one of these approaches probably will not work with all customers. Every customer and their needs are different. Ensuring the quickest payment may mean a little
bit of negotiating with each customer to find a mix of the approaches that work. For customers that habitually pay late, requiring payment on delivery may be needed. Some companies only pay bills once a month, so if an invoice arrives the day after, it waits for another month. You may need to talk with the account payables person to find out the payment practices of a customer. Taking the time to find out what different customers respond to can make the difference between having the cash in hand or holding onto another overdue invoice.
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