Not getting paid on time or at all can severely impact a business's cash flow and operations.
According to recent statistics, over 25% of invoices sent by small businesses are paid late, with the average payment time being around 27 days past the due date. Late and non-payments are a major headache that all businesses have to deal with at some point.
Here are some practical tips and advice for businesses on how to prevent and handle late or non-payments from customers:
Set Clear Payment Terms Upfront
Be sure to clearly communicate and get agreement on payment terms before starting work with a new customer. Spell out payment deadlines, acceptable payment methods, late fees etc. in a formal agreement. This avoids confusion down the line. Consider asking for a deposit or staged payments for large projects.
Send Invoices Promptly
Don't delay sending invoices. Send them as soon as work is completed, clearly listing all charges and payment info. Automate invoice generation if possible. The sooner the invoice is sent, the sooner you can expect payment.
Follow Up Diligently
Persistently follow up on any unpaid invoices. Send polite payment reminders via email and phone. If initial reminders are ignored, follow up more firmly with a formal letter stating you may take legal action.
Offer Incentives for Early Payment
Consider offering a small discount for customers who pay early or on time. This encourages prompt payment. You can remove this incentive if customers start paying late.
Stop Work for Non-Paying Customers
Don't keep doing work for customers with outstanding dues. Make it clear that you will halt all work until invoices are settled. Enforce this consistently.
Consider Getting Credit Insurance
Look into credit insurance which covers you in case of non-payment from customers. The insurer may also do credit checks on customers for you.
Explore Debt Collection Assistance
If reminders and calls fail, hire a professional debt collection agency. They have the expertise needed to recover dues through legal means if required. Collection fees are usually charged to the non-paying customer.
Go to Small Claims Court
Taking a customer to court over non-payment should be the last resort. Weigh the time and legal costs involved versus the invoice amount.
Report Non-Payment to Credit Bureaus
If there is blatant non-payment or fraud from a business customer, report it to credit bureaus like Equifax. This impacts their credit score and profile, alerting others about non-payment.
Prevention is better than cure when it comes to late and non-payments.
Implementing strong payment collection processes and policies from the start can help avoid many issues down the line. Act swiftly when issues do crop up and enforce consistent consequences for non-payment to condition customers into paying on time.