Having clients who are slow to pay you is a problem all businesses face at some point – not just in Singapore, but all over the world. It’s frustrating, and it can occasionally be a struggle to keep cash flowing so you can pay your own vendors and your staff.
Rather than pressuring those laggard customers to pay up with grumpy phone calls, here are four easier (and more tactful) ways to handle the situation.
- Accept More Forms of Payment
If you only accept checks, you’ve tied your own hands. Cutting a check isn’t a quick process for most companies, and might require the accounts payable department to wait until the CEO is around to sign the check. Either that, or checks only get cut once a month, so you’re at the mercy of their schedules. Then you’re stuck in the “check’s in the mail” waiting game. It’s easier than ever to accept credit cards and mobile payments, and both put money in your account in days, not weeks.
- Charge a Late Fee
People don’t like paying more than they have to for anything, so informing clients on invoices that you charge a late fee for invoices paid past their due date may be enough to get those slow-to-pay clients moving. You can charge a flat rate, such as $25, for any invoice past 30 days, a percentage of the amount due, like 1 percent of the invoice amount for each month it’s late, or you can prorate that percentage and break it down by the number of days it’s late.
- Offer a Discount for Paying Early
The reverse psychological approach to the late fee is rewarding customers who pay before an invoice is due. Even a 2 percent discount can be enough to get them to pull out their credit cards, and it’s a small enough amount that you won’t suffer too deep a loss to your profit.
- Charge Up Front
If you provide services, why not treat them the same way as businesses that sell products and collect payment up front? For larger services — for example, a comprehensive branding project — you might charge for half up front, and the rest upon completion, especially if you’re working with a new client.
Whichever of these strategies you implement, it’s imperative to let your clients know in advance before you implement a change in your payment policy. Clients might not even pay attention to your due date, so send out an email reminding them that payments are always due, for example, 30 days after receipt of the invoice (net 30), and that as of next month, any payments received after that period will be charged a late fee.
Keeping the lines of communication open with your customers can help you transition smoothly to acting on your new policy. But be open to changing the rules. For example, if a longtime client comes to you and explains that he’s going through a difficult financial time and asks for some flexibility in payment options, consider whether you want to jeopardize that relationship by sticking to your guns, or if you have it in your heart (and bank account) to make other arrangements for him.