5 mistakes businesses make that lead to late payment
Poor communication with your customer and an over-complicated payments system could result in damaging late payments becoming commonplace
Late payments are the scourge of the UK’s small business community, creating cashflow problems that can have far-reaching consequences and even lead to business failure.
Chasing late payments from customers can waste valuable hours and resources that could be better spent helping your company to grow and thrive.
And while the onus should be on your customer to pay on time for a job well done, there are certain things you can do to help ensure you get paid promptly.
Here are five common mistakes businesses make that lead to late payments and how you can avoid them…
1. An over-complicated, confusing or out of date payment system
A complex system of payment or multitude of options could be preventing customers from paying you on time, no matter how able or eager they are to pay up.
People don’t like parting with money anyway, and confusing them is just an extra incentive not to do so. By offering one or two simple alternatives such as automated direct debit, you increase the chance that a customer will pay promptly.
Why not move to automated invoicing? If you’re still sending out paper invoices in the post, it could be time to switch to an electronic system that reduces admin and the risk of invoices getting lost in the post.
2. Bad communication
Establish terms and conditions (T&Cs) with your customer from the very start so they understand what is expected from them and what will happen if they do not pay on time: e.g. fines. Include these T&Cs in any future invoices to ensure they are not forgotten.
However, be careful not to sour your relationship with them through intimidation or threats – building positive relationships is more likely to result in prompt payment than fear and scare tactics. Make them want to please you.
If they are consistently late with payments, try talking to them to discuss ways you could help. Perhaps all they need is a change in the date or terms of payment. Offering an instalment plan to a customer that does not have the necessary cashflow to pay a lump sum could help.
Simply sending regular reminders is another way to ensure your customer pays up if the only reason for their lateness is a lapse in memory.
3. A lack of control
You don’t have to leave it in the hands of your customer as to whether you get paid or not. Payment methods such as standing orders put the power in the hands of you customer, who can cancel or change their payment at their leisure.
Alternatively, methods such as direct debit or credit cards allow you to change the date and amount and even charge for late payment.
4. Inaccurate or out of date payment information
This is a particularly foolish mistake to make if you want to ensure prompt payment. Double, even triple check that any payment information you’re sending out in invoices or emails is up to date and completely accurate.
A stray digit is easy to do and details may change. If your customers aren’t paying it could be because you’re sending out incorrect information.
5. Overly generous payment terms
While 30 days is fairly standard, consider a tighter window for payment. Lengthy terms could result in invoices being left on the backburner and potentially forgotten about. As long as this is established from the beginning, your customer shouldn’t have a problem with meeting your terms.
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