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How To Manage Customers Who Pay Late

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Dealing with late payments from a customer is simply no fun. And when your client is a chronic offender, financial tardiness is more than just annoying. Consistently late payments can severely curb your cash flow and put your whole business at risk.

 

Here, we delve into how you can use your invoice to avoid late payments. And if your invoice doesn’t work, we examine what you need to do to collect on those past-due payments.

 

Send your invoices on time

We’ve said it before, and we’ll say it again. Nothing gets you paid faster and more reliably than sending your invoice as soon as it’s due. Whether your payment cycle is weekly, monthly or something else entirely, stick like Velcro to your agreed-upon schedule.

 

Negotiate terms up front

Speaking of payment schedules, make sure you and your client agree to one during your initial contract negotiations. Put all the terms in writing so there’s no room for misunderstandings about deadlines or late fees. Experts say the payment deadline “sweet spot” is 10 to 15 days after receipt of an invoice.

 

Penalise late payments

A standard late fee is 1-2% of the total amount due. Whatever penalty you choose to enforce, make sure it’s steep enough to change your client’s bad behaviour.

 

Keep clients’ credit cards on file

If your business has recurring customers, keeping their credit card on file can minimise payment headaches for both of you. Just be sure to get permission in writing to charge the card, and make certain you store their private information safely and in full compliance with PCI standards.

 

If you’re sending invoices using an online financial management platform, you can set up automated, direct payments from an approved credit card.  

 

Consider invoice financing

If you’re really strapped for cash, you might seek out a special type of loan for the amount you’re owed, or due to be owed. Known as invoice factoring or invoice financing, such loans are possible if your invoices are due and payable within 90 days and the businesses you work with are reputable and have good credit scores.

 

The money you borrow through invoice factoring is equivalent to a loan, but the fees or interest varies depending on the provider. Factoring can be a great solution if you’re a fast-growing company that needs to free up cash from your outstanding invoices. Some factoring companies will even take on collections, chasing up your late payments for you.

 

What to do when your payment is late 

Some customers are notoriously nonchalant when it comes to paying what they owe no matter how punctual, professional or pretty your invoice. Here’s a roadmap for tracking down your money.

 

For this example, let’s assume you’ve agreed payment is due on the 1st and 15th of every month.

 

 

Day 15

Your money is more than two weeks late. Time to send your customer a polite reminder. A good opening line for your communication? You’re just checking in to make sure the client received your invoice. Or consider this approach: since your second payment of the month is about to come due, send that invoice and include the original outstanding amount too.

 

Day 30

We know you’re frustrated, but skip the email missive and pick up the phone to find out how you can expedite the payment process. Emphasise the specific due date—and remind your client about the agreed-upon payment terms. If it’s possible to have this conversation in person, schedule a meeting ASAP.

 

Days 32-45

Time for some deep breaths. Don’t get furious. Get persistent. Touch base with your client several times during this period. It’s really important you stay calm and professional. Here are 2 other reminders:

 

  • Don’t deliver any new work until you’ve received your full payment (adjusted appropriately for incurred late fees)
  • Throughout this time, keep sending an updated invoice that reflects both your outstanding original payment and the accrued penalties 

Day 60

Take a moment to send one more reminder, just in case your invoice has been moved to the next month’s “payment due” pile. If there’s no response, you might consider connecting with a collections agency. Unfortunately, radio silence may indicate your client has gone out of business. In this scenario, it may be time to cut your losses and assess what you can do differently to avoid this trying situation in the future.

 

Before you go

QB Community members, have you had to “retrain” customers so they’re punctual with every payment? Please share your stories – and your strategies for success below in the comments!

 

 

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Want to join the conversation? But not yet a QB Community member? Click HERE to sign up in a flash!

 

Want to read more tactics and tips for getting paid? Check out this post:

More Invoice Tips To Help You Get Paid Every Time

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