Late payments are a huge burden on any business as it affects its future projects and productivity. It also affects the survival of small businesses as they have limited options to cover for these losses.
According to a study conducted by Plum, a consulting firm, 11% of all invoices sent out by small businesses aren’t paid on time. What’s more shocking is that 7.5% of these have to be recorded as bad debts - which implies that the customers never paid them the due amount.
The reason why we are here today - to provide you with a list of measures you can take to ensure that your business is paid on time:
1. Remind your customers consistently
It might seem a bit unprofessional to pester your customers with frequent reminders but it’s a great way of ensuring that they do not ‘forget’ about the payment. Contact them at regular intervals. You can set up an automated system that sends customers regular messages. These messages can contain the payment details and a timer for the due date.Setting up an automated system will increase your efficiency and probability of getting paid. According to Ardent Partners ePayables, payment automation can reduce duplicate and overpayments by 292 percent!
2. Draft and sign contracts
Ensure you draft a contract containing all the details of the deal. Also, make sure all the documents you receive from your customers are checked by a lawyer. This is important to protect yourself from being duped by the customers. Draft all contracts with strict consultation from a lawyer to avoid any discrepancies. Do not forget to get it verified from a financial firm.3. Reduce your credit terms
Nowadays, most businesses send invoices online. The payments are also mostly made online; in the US, more than half of the population pays bills online, as per the research made by Cedars Business Services. This has significantly reduced the time required to complete a transaction compared to the older days when invoices and cheques were sent manually through the post.This gives you an opportunity to reduce your credit terms, i.e., the terms that imply when payment is due. You can reduce the time period from the traditional 30-day cycle to a shorter one—usually 7-14 days. But make sure that your credit terms are not too difficult for your customers to meet.
4. Provide incentives
You need to give your customers specific incentives to motivate them to pay before the due date. For instance, you can give them a discount (usually 2-3% of the total) if they pay the entire sum within 10 days of receiving the invoice.You can give your customers an offer to pay a certain sum of money monthly in installments until the entire amount is met. This will make it easier for them to make large payments.
5. Ask for deposits
Make it your company's policy to ask for a certain amount of money to be deposited by your customer before undertaking any new project. If the customer fails to pay the due amount by the stipulated date, you still won’t be at a complete loss because of collecting the deposit.Collecting deposits becomes even more critical if you are taking a risk by doing business with a company with a low credit score.
6. Refuse to accept orders from overdue accounts
Do not accept new projects from clients who have yet to pay their previous dues. Conducting business with such clients can put your business at immense risk.You can also set up a method where you collect the payment before delivering the goods or completing the project. Undertake this method with clients who are frequently late in making payments.
7. Hire a professional debt collector.
Professional debt collection agencies specialize in collecting unpaid bills. In return for a certain amount of fees or concession, you receive the entire amount of debt without the physical and emotional effort.Hiring these third-party agencies like Cedars business services will reduce your trouble of engaging with clients who refuse to pay irrespective of constant reminders. Instead, you can invest the saved time and energy into expanding your business. But before hiring one, get familiar with their processes. Here is a very fine article about how debt collection agencies work. This might be of some benefit to you.
Don't let others ruin your business by hoarding the money you deserve. Share these tips with all your colleagues and friends to help them realize timely payments!
