Minimize the impact of delayed payments from customers on your business[sharify]
Late paying customers can pose some serious problems for your business, especially if your business is a small and medium sized businesses or start-ups.
It can ultimately cause rigorous cash flow problems which is a main reason for your business failure. It means how much good your business idea, product, service or entrepreneur is, and you are wrecked for failure. So how you are going to effectively manage your customers who make late payments? What steps would you take to improvise your cash flow?
Tips for preventing Late Payments
By organizing yourself
By making yourself organized is the initial step in taking care of late paying customers. This can be made by formulating an aged debtors list which lists every type of customer, which includes their details of business, contact information and when each invoice becomes due when to be paid. This sounds clear when things are required to be done. You can also make additions like a “traffic light system” which exhibits which customers are repeatedly late or sometimes late and normally on time. This will also assist in determining on the basis of longer terms of credit upon which customer can be trusted.
Getting your customers Organized
Some customers don’t have the habit of paying their dues until reminded. By sending those regular statements and payments reminders, they will be consistently reminded they have a debt payable. Irrespective of these constant reminders they are still not in contact about what is happening, send them “7 days’ notice letter” to threaten them with action from court. Be mindful, to keep this to those customers who are very much irresponsible as it can also have an impact on customer relationships.
Customer relationship management
There are several benefits for forming a close relationship with your customers. It can generate trust and an approach of partnership for resolving problems discussing the best methods for paying an invoice. However, face-to-face interactions would be more personal, getting a better idea on what problems a customer may have. Suppose, a customer’s clients may not be paying their invoices to a customer. So why not to put extra pressure on the client? The possibility of paying high become once, two companies are pressurizing them. Frequent communication also provide the possibility for discussing payment options like having discounts for early payments or payments in different time periods such as quarterly payments as against monthly. These can cause neutral benefits for both sides i.e. a partnership approach.
Controls from External Company
Looking for outside help may become one of the reason for solution and a procedure to conquer problems brought about by late payments and lengthy credit terms. However, bad debt insurance will get added to the monthly costs of a business, it may work out to be valuable if irresponsible customers are involved.
One possible option to look out for in this case is invoice finance. There are two methods available for collecting around 90% of the invoice value, within 24 hours. These are invoice factoring and invoice discounting. This is applicable through an external company which purchases the invoice, providing upto 90% of its value and the debt is taken over by the factoring company themselves.
Invoice discounting varies from this as the business is left in charge of accumulating the invoice debt to be repaid to the discounter at an approved time—-this is like having a short term loan with the invoice value justifying that the company has the repaying capacity without any high interest rates.
Handling late payments is essential for regulating if businesses wish to minimize the impact it has on cash flow. And at the same time being well arranged and maintaining a better relationship with customers will assist in the on time of invoices, external options can provide you.