How to manage late-paying customers
JOHANNESBURG - One of the biggest risks that any business can face is late or non-paying customers.
This can seriously affect cash flow and impact on the commercial sustainability of the businesses. It is therefore important to ensure that business processes regarding payment terms and invoicing are in order, and that you have a plan in place for managing customers whose payments are past due.
Below are some handy tips we share to help prevent late or non-payments and to assist in recouping unpaid funds from customers.
To prevent any confusion, make sure payment terms are clear when onboarding a customer. Some businesses charge a certain percentage of the fee upfront as a deposit, which can be a useful strategy for excluding non-paying customers from the get go, while others include a clause that all services will be suspended when payment is overdue.
A streamlined invoicing process is imperative. Be sure that statements are simple enough for the customer to understand. Send invoices in a timely manner and make sure there are multiple easy ways to pay, such as e-payments and recurring debits.
Good customer service processes are likely to improve your professional relationships with customers which in turn can help prevent late or non-payments. It can also work well to incentivise good customer behaviour, such as discounts for those who pay on time regularly.
The first course of action towards recouping late payments is to remind the customer of pending payments and resending invoices. Set a deadline within a realistic time frame
and, if the funds are still outstanding by that date, be sure to follow up again.
The reason for late payments can be anything from forgetfulness and bad internal processes to serious cash flow issues. It is therefore vital to understand why the customer is not paying, and proceed accordingly. If, for example, the customer is not paying because they were unhappy with a product or service, address those as swiftly as possible.
Stay professional throughout your communication and maintain an appropriate tone. Be friendly and polite, but firm and persistent. Keep a positive attitude and try to be patient, as the customer’s future business might be worth more over the long run than this one late payment.
If all else fails, you may need to consider legal action. Options include a debt collection company or consulting a lawyer. Before taking this step, it is important to perform an honest cost analysis that weighs up whether the legal fees incurred would be worth the risk, or if you should instead cut your losses and write off the debt.
Ben Bierman is a managing director at Business Partners Limited.