No small business owner should have to deal with late payments – but, sadly, they are a fact of life for far too many. And, left unchecked, they can severely harm your business’ prospects.
In this article, we’ll run through some top tips for preventing late payments – and for dealing with them when they occur.
Top Tips to Avoid Receiving Late Payments
Send Good Invoices
The first thing you can do to reduce your chances of dealing with late payments is ensure your invoices are clear, clean and fit for purpose.
The most important things to include in an invoice are:
- An itemized list of the goods and services you provided
- Individual costs and the total amount due
- A clear statement of payment terms, including how and when to pay
While there’s more than just this to good invoicing, including these elements should be your top priority. If you’re taking payment by BACS, you should also make sure to include your bank details. Remember, your aim when invoicing is to make it as easy as possible for your clients to pay you in full and on time.
Do your research
You also need to make sure you know who you’re dealing with. While you might not need to go as far as checking each and every client’s credit history, you should have some idea of who you’re working with before you provide goods or services. While it’s natural to want to serve as many customers as possible, a big part of good entrepreneurship is knowing when to walk away from a bad deal.
And remember that research is not a one-time thing! The world of business can be fast-moving and competitive, and even a successful business can fall on hard times. For the best results, check up on clients regularly – and if one customer is consistently late, you should take care to investigate what’s going on. Keep in mind that they might not always be willing to report when they’re struggling – but knowing if they are will help you make the right business decisions.
Follow up with late payments
If your due date passes and you still haven’t been paid, you should get in contact with your client immediately. Late payment does not necessarily indicate a serious problem on the customer’s end: in many cases, your invoice might simply have been missed. When this happens, you often don’t need to do more than send a simple reminder to get the money you’re owed.
You should also try to have a system in place for chasing up late payments, so you don’t have to start from scratch each time it happens. A good approach is to start out less formal and escalate if needed. Start with an email to make sure they’ve received your invoice and, if necessary, follow that up with a phone call and a formal letter requesting payment.
Use Accounting Software
A big part of growing your business is always being ready to seek out and seize new opportunities. Using good accounting software is a great way to do this, and can provide significant benefits to your business over and above avoiding late payments.
Using software like QuickBooks will allow you to:
- Automate your payment process
- Send invoices automatically
- Track invoices and flag late payments
Because of these features, accounting software can save you time and ensure you can get on top of any late payments as soon as possible.
Offer More Payment Options
Finally, you can minimise your chances of having to deal with late payments by giving clients more options when it comes time to pay you. A direct debit can be especially useful when you have regular dealings with one client. Otherwise, you can make sure your setup allows you to accept card payments and other transfers.
Allowing customers more flexibility will not only make it easier for them to pay you – it will also encourage them to do business with you in future and even recommend you to others.
Late payments can be seriously damaging for a small business, impacting cash flow and making long-term planning far more difficult. You always have the option of legal recourse, of course, but that can be a lengthy and strenuous process. For better results, adopt clear principles for dealing with late payments when they occur, and prioritise flexibility and good invoicing practices to reduce your chances of having to deal with late payments in the first place.