Managing slow payers in business
In today’s economic climate, more and more businesses are suffering from slow payment from their clients, which in turn can cause a stressful experience for all involved. Fortunately, there are some steps a business can take to reduce the risk and minimise bad debts.
For each new client, set payment terms clearly. This can be done by drawing up a contract which details when payment is due and the methods of payment accepted. Decide how quickly you will need to receive funds after the client has received their product or used the service and create a schedule of payment from date of invoice. Factor in the amount of time it may take for funds to reach your account, for example, a cheque payment may take 3 working days to clear and overseas payments may take longer. Take this into consideration before sending out any reminders or demands to the client as they may have paid, but you are unable to see the pending funds. Within the contract, you may choose to include fees pertaining to late payments or interest charges.
Consider offering a probationary period for new clients such as payments must be made in advance for the first 3 orders or set a cap on the amount of credit they are able to have in advance until you have established a good working relationship and regular orders paid on time from them. If your product or service is exactly what they need and they are credit worthy then this should not be a challenge.
Choosing to ask for an upfront deposit can increase cash flow and contribute to a smoother credit control process. If the business has an outlay for products and services to the client then this can be an effective way to ensure that you have funds in advance. If a deposit system is implemented, it is crucial that you do not start work until it is received.
Another deposit style system is to hold funds until a specific date, for example, the client sends you a postdated cheque or sets up a standing order for the greed payment date. This will eliminate forgetfulness and if the funds are available, you will receive them without the need to send reminders, saving you valuable time and resources.
Keeping accurate and up to date records can save time which in turn saves money. Invoices should be sent immediately with payment terms stated clearly, then a follow up reminder if payment is not received by the due date. There are software packages available which can automate this process or a simple spreadsheet may suffice.
New client checks
Many businesses now opt to perform a credit search on new clients to ascertain their credit risk. It is vital that the client accepts this request which can be included in their contract or a separate document requiring a signature. Any agreement should be kept securely. If you require credit checks, then our own service does exactly that - contact us for more information or open an account.
Managing a late payment
If a payment is not received on time, it is good business practice to send a reminder letter or email in the first instance with extended payment dates such as payable within 7 days. Regardless of your previous experience with late payers, it may just be that this client has innocently forgotten or perhaps been on holiday and just needs a gentle prompt. Ensure that you are contacting the correct person who is responsible for transferring the funds. If the monies are still outstanding after the extended deadline, call and speak with the client. Often you can gauge more over the telephone and gain a better understanding as to whether there is a problem.
If the client states that they are having difficulty paying, it may be a solution to offer an instalment payment plan such as splitting the total bill into equal payments spread over 3 months. This method will increase your chance of at least receiving some funds should the client’s financial situation worsen and will help to keep the business relationship positive. You may choose to add interest to the instalments to cover any additional administration costs or charge a late fee such as 5-10% of the total outstanding amount.
Keeping it private
If you do experience slow or non-payers then keep any dealings private. All too often, businesses use social media to openly discuss others yet this can have a detrimental effect on your business in the long run. Any conversations or correspondence should be between the client and business until there comes a time when you seek legal advice.
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