The process of collecting late invoice payments can be one of the most frustrating things about running a small business owner. While you may be happy to remain flexible and offer extended payment terms, the administrative process of “checking in to collect” can be overbearing.
For one, payment follow-up emails are resource sinks for a business—there are limited hours in the day to accomplish as much as you need to achieve, and if you’re not following up, you’re paying somebody else to do so.
Second, you may not like to have transactional conversations with our customers.
One of the ways to manage this frustration is to take a step back from it.
Rather than jump to conclusions about why clients weren’t paying, seek to uncover the barriers that are holding them back.
What you’ll learn is they’re often buried under admin, have indirect communication channels with approval and payments teams, and are often unaware of a small business’s needs to manage cash flow with diligence.
Rather than losing control of your cash flow (and sanity), use lapsed payments as opportunities to reconnect and build stronger relationships with your customers. Here’s how.
Step 1: Prevent the Lapse
Because cash flow is such a pain point for many companies, it’s important to have clear invoicing workflows. Anticipate problems before they happen. You can use software like QuickBooks to manage this process.
One metric you can study is how long it takes for each customer to make a payment. If you notice that a payment has exceeded a certain number of days, even if it is not late, you can reach out to your clients’ accounts payables (A/P) teams, asking when it will be scheduled for processing.
If you notice that a payment deadline is approaching, but your payments have not been processed, follow up. As an added layer of protection, you can send all customers automated reminders through QuickBooks.
These simple steps prevent administrative hiccups before they have a chance to happen. You’ll minimize the time we spend fighting financial fires, as a result.
Step 2: Wait
Invoice due dates need wiggle room.
There are many variables that impact how quickly payments make their way to our bank account. Online payments take less time to process than paper checks. But bank holidays and deposit clearance periods can slow processing times down.
Credit card processing times are also important considerations, as it can take a few days for funds to reach a business bank account. Anticipating these delays helps us build processing time and flexibility into our cash flow management plans.
To the best extent possible, You need administrative touch points with our customers.
Seek ways to make payment processes easier for all parties. This patience will help customers always remember that you have their best interests at heart. Build potential wait times into your invoices to eliminate the potential for scrambling—after all, your customers have businesses to run, too.
Step 3: Follow Up
When following up on a late payment, offer solutions of the bat.
Understand that there are a number of reasons why a client holds off on processing an invoice. Your customer may be waiting to get paid, hitting a temporary rough patch, going through accounting transitions, or experiencing administrative delays all-around. When asking a customer about an invoice, do so calmly and with zero assumptions.
Offer solutions like the following:
- A slightly extended payment term
- Installment plan options
- The option to hold off on the next month’s budget
- A link to an online payments page
- A direct line of contact to our accounting team, for human support
At this point, the majority of your customers like will likely say, “I’m sorry” and remit payment.
Depending on the amount that is due and the circumstances of how you spend those funds, you may choose to ask for an expedited payment.
Keep conversations positive, and solutions-forward looking. Maintain a primary point of contact with your customers’ A/P team, which has direct visibility into invoice processing queues.
This visibility makes it easy to gather answers to administrative questions—such as where a payment might be in its processing queue.
The end outcome of this step varies between customers. The goal is to establish a simple cash planning strategy that works for all parties involved.
Step 4: Escalate
There may be instances in which you need to escalate a response to a non-payment. Even if you have a low default rate on your invoices, you’ll likely run into scenarios in which—for whatever reason—customers behave with a lack of responsibility.
Your company needs to maintain a zero-tolerance policy for ignored emails, excessive payment delays, and lack of communication. In these situations, give your customer a warning: that you will send their invoice to a collections agency within 7-14 days (or some designated timeframe) and have your legal team collect upon all incurred expenses.
Remain polite, calm, and respectful.
No human wants to end up in collections or with a dispute. However, this message functions as a wake-up call for organizations that have the slightest instinct or tendency to take advantage of their vendors.
As honest as you remain, remember that you cannot control others’ integrity. You need to be prepared to respond with strength and force.
Transactions and trade keep the small businesses, consultant, and entrepreneur economy strong. Missed payments are more than a breach of contract—they disrupt a business’s ability to run smoothly and provide a high level of service.
Transparent communication prevents disputes before they have a chance to arise. The more time you spend planning and building relationships, the less time you’ll spend chasing your tail wondering how and when you are going to get paid.