Disaster prevention for late payments:
Sometimes late payments can be the fault of the business owner and not the customer. Customers delay payments if they are dissatisfied with merchandise or receive unsatisfactory customer service. Addressing customer complaints can speed payments and maintain a profitable business relationship. Of course, there’s always the occasional bad customer, but customers shouldn’t be angrily attacked for late payments. This can ruin professional relationships and cause you to lose a valuable client.
It may be possible to save yourself the hassle of dealing with problem customers by screening them ahead of time. Running a credit check can save you time and money in the long run. Some companies offer affordable credit check rates to small business owners. The information you receive from a credit report will help you determine whether or not you want to take a chance on certain customers.
If a bad customer makes it through the selection process, you have no choice but to stop supplying that customer until you receive compensation. This is not a step to take lightly, but it may be necessary. For example, a customer who is three months behind in payments should not benefit from your products or services for free. If bad customers know they can get a product without paying for it, they will take advantage of the situation.
It might even be necessary to seek out professional collectors in extreme cases. Potentially losing a customer may seem like a bad business decision, but keeping one who refuses to pay is even worse. Bad customers just serve as a waste of time and resources, and it’s always better to get rid of them.
Let your customers know your payment rules:
Always describe your billing procedure and maintain a slush fund. While this may seem basic, many small businesses do not apply these rules. Clearly outlining your billing and payment policies leaves customers with no excuse for paying late.
The policy should explain acceptable forms of payment, as well as the dates and times payment is expected after the customer is billed. It is important to adhere to these policies once established. Breaking your own rules will not motivate your customers to adhere to them. You set the standard, and if you wait a month to send an invoice, it doesn’t create a sense of urgency for your client. Set aside some time each week to send out new invoices and follow up on existing ones.
It might also be wise to initiate a 3% penalty on late payments. This serves a dual purpose: it gives your customers a greater incentive to pay on time to avoid the penalty fee, and it also helps negate the effects of check cashing fees or cover the bank’s own late fees. .
A slush fund acts as a reserve and provides a cushion in case a client is a few days late on a payment. This will help you keep up with your payments while you pursue what is owed to you. A good rule of thumb when setting up a slush fund is to keep a reserve large enough to pay rent, salaries, and utilities for at least a month. Hopefully you won’t have to use it, but it can prevent you from being labeled a bad customer.
Unfortunately, late payments are inevitable. Even with careful scrutiny and clear guidelines, customers sometimes “forget” to pay on time. There is nothing wrong with chasing down payments as long as it is done professionally. Often a polite email or phone call is all customers need to remind them and resolve the matter.
Make it easy for customers:
Some companies benefit by offering incentives for early or on-time payments. Offering financial or service benefits to customers who pay on time makes sense. Not only does it give them an extra reason to pay their bill, it also builds customer loyalty, and you want loyalty from customers who pay their bills on time. A two percent discount for paying within 10 days of receiving the invoice is customary for many businesses. However, finding more creative incentives, such as good customer rewards, can set your business apart from others.
Accept as many forms of payment as possible to make it easy for customers to pay their bills. Businesses that only accept cash or guaranteed funds do not make life easy for their customers. People rarely carry cash with them, and secured funds, such as money orders, are not free and consume valuable time. While there are typically fees (up to three percent) attached to vendors that accept credit cards, these may be worth investigating, especially if you have customers using credit card rewards.
Also, banks compete for small businesses and may have some affordable options that make your life easier. Look at the option of electronic transfers. This makes it easy for customers to pay their bills and makes good business sense if you have multiple repeat customers.
Discussing late payments with clients is never nice, but it needs to be done. There is no reason to make threats or get impatient. However, there are many reasons to collect what is owed. Remember that late payments affect cash flow, which determines how long your small business will survive. Given the economic uncertainty, small business owners need to be especially careful when monitoring their payments and cash flow.
For more information on how Bridge Capital can provide accelerated cash flow solutions for your business in the Suffolk and Nassau area of Long Island, NY; Visit our website for more great information at http://www.bridgecapitalsolutionscorp.com