Running a business can be difficult, and you rely on your customers and clients to make it a success – so when funds that you’re owed aren’t paid on time, it can tie up your cash flow, and mean that you must look for other ways of financing your business to allow it to continue to run smoothly. There are ways that you can deal with any late payments from invoice financing to sending reminders and setting out your conditions from the start. Read on to find out more.
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Reasons for late payments
When you offer a service or product to others, you expect to be paid promptly, on time with the right amount of money owed – so when this doesn’t happen, it can get frustrating, especially if you’re a small business that relies on payments to meet staff wages and overheads. There are many reasons why your clients or customers may not be able to pay you, whether that’s due to a lack of funds or not having a reminder in place. Below, we’ll look at a few ways that you can manage late payments from customers or clients.
Invoice Financing
This is one of the most efficient ways your business can deal with invoices and payments not being made on time. You can choose from one of the many companies that offer invoice financing to ensure you’re getting your payments on time. All you must do is give your chosen lender the value that you have currently tied up in unpaid invoices and they can provide you with that amount in your account within days.
Some benefits come with this solution such as, you can free up cash flow within your company so you can continue to operate smoothly. Of course, these invoices must be paid back when the late payment is eventually received – you could consider this type of financial help if you need funds quickly.
Easy Payments
As a way of ensuring your customers and clients can make their payments on time each month, you must have an easy way for them to pay in place. You could try and encourage payments to be made using online banking and Bacs transfers so that you don’t run the risk of cheques going missing in the post or having to wait for them to be cashed. Cheques can also be hard to track and can cause disputes between customers and businesses, so choosing to use online payment methods can save you some stress in the long run.
Credit Checks
If you’re supplying another company with goods, you should be sure to credit check them as a new customer to your business. You can do this by using Companies House or various banks can provide credit checks on your behalf. This is crucial when taking on a new customer so that you can find out a little bit about their financial position, including their credit rating, or if they are regularly late when it comes to making payments.
You could also ask customers for references. This might seem like a lot of effort but calling others that deal with your new customer to see if they pay their invoices on time, can give you a good idea if they are prompt when it comes to paying bills.
Send Reminders
Sometimes, your customer may not have paid their invoice because it’s simply slipped their mind. This method may not be helpful if your client is not willing to pay the invoice, or doesn’t have the money to do so, but giving them a gentle nudge can improve the chance of your payment making its way into your account promptly.
You could start by sending an email to your clients and customers a few days before their payment is due as a reminder. If they do not pay on time, send a follow-up a couple of days after the due date. If you don’t receive your payment after this, picking up the phone is one of the best ways to get a response. It allows you to discuss an outstanding balance and you stand more of a chance of getting a straightforward answer.
Clear Payment Terms
As a way of avoiding late payments happening too frequently, it is advantageous for your business to set out clear terms so that they don’t become too confusing or difficult for your client or customer to understand. You could take the time to talk through your payment methods and terms, so you can make it clear to them what you expect. Sometimes terms listed on invoices can make for crossed wires, so either talking to a new client or customer face-to-face or over the phone can help to eradicate any confusion in the future.
As well as clearly stating to any new customers your terms of payment, you should also make your rights as a business clear to them. You should make sure they’re aware of any interest they may incur if they are late making payments.
