A client purchases your product or service. You sell it to them on condition that they will pay up on a later date. You also send them an invoice indicating the due date as soon as you make the sale.
Unfortunately, not all clients honor invoices on time. One survey established that at any given time, 64 percent of small businesses have invoices that haven’t been paid for at least 60 days.
As an owner of one such business, you certainly know the pains of this model. Fewer things are harder than collecting on unpaid invoices. Some clients will fail to pay what they owe you, which means following them up.
Not an interesting job by any means, but it has to be done. And the good news is as long as you have the right strategies, you can always get your late-paying customers to pay up.
You’re not a debt collector. You’re a small business owner.
As such, you certainly don’t have the right professional training to collect unpaid invoices. This is why it’s super important to develop the right attitude.
Let’s face it. Most late-paying customers are problematic. They’ll come up will all kinds of excuses to delay your payment for a further week or month.
This can be frustrating, especially if you need the money the keep your business going. Without the right attitude, it’s easy to go off the rails on your late-paying clients and possibly ruin your business relationship.
Developing the right attitude means embracing the fact that it can take longer than expected to collect your payments. This will not only help keep your frustrations at bay but also enable you to develop a sound financial management policy for your small business. For instance, you’ll always ensure that you have adequate working capital at hand even when your accounts receivables are going unpaid for longer.
If your business model doesn’t require clients to pay upfront or at point of sale, your accounts receivables will be large, no doubt. While not every client will be a late-payer, it’s essential to have a clear picture of what’s happening.
How many clients are late? By what amount of time is each late client actually late? Do you have late payers who have a good record of making good their word when they ask for an extension?
When you have this information, it’s easier to know how to approach each client. For example, you need to be more aggressive, albeit subtly, with late-paying clients who have proven to be problematic as compared to this who actually pay up after one or two follow-ups.
The question is: how do you collect this information?
If you aren’t already using an accounts receivable software, now is a good time to invest. Most small businesses use Zuora to manage their invoices, but if this is out of your range, there are good Zuora alternatives.
Sometimes all it takes for a client to honor an invoice is a simple reminder. Some of these clients might be busy with other aspects of their lives that they simply forget about their payment obligation.
A reminder, which can be an email, fax, or postal mail, will work the magic.
But this isn’t always the case. A habitual late-payer will ignore your reminders, especially if they aren’t ready to make the payments. Others might not even read the reminders at all.
It can be tempting to avoid sending reminders to troublesome clients, but it should be your first step. Send the reminder anyway even if you’re pretty sure the client will ignore it.
A reminder letter is a polite way of communicating your message, even if the contents of the letter might not be so polite. From the fact that letters aren’t delivered and read instantly, one can tell you’re in no specific hurry to pass the message.
Generally, you should give your clients 30 days to respond to your letter.
If they don’t, it’s safe to assume that they either didn’t receive it or have no intention of taking the requested action.
When that’s the case, it’s time to hit them up on their business line!
You collect your clients’ contact information, including their business, and maybe, private lines. Call them up during business hours and politely ask whether they received your reminder later. Next, let them know that their payment is late and they need to honor the invoice by a specific date.
The tone in your voice can go a long way in shaping your future relationship with the client. Just because they’re late doesn’t mean you don’t need their business. It’s still easier to retain a current customer than it is to get a new one.
If your business has a few clients who pay later, you probably don’t need a credit specialist. But if your business has lots of such clients, it’s advisable to hire a credit professional.
Credit specialists will craft and implement an invoice collection strategy for your business. And because they’re professionally trained, you can count on them to maintain professionalism when contacting your clients.
Some late-paying clients just won’t budge. Reminder letters, phone calls, and visits to their business premises don’t mean a thing.
Although in most cases, a client will fail to pay up when they’re in extreme financial pressure, they still have a legal obligation to pay you for your goods and services. When all your actions yield no fruit, it’s time to take legal action.
A business lawyer will send them a demand letter. This is usually enough to get a difficult client to pay. If this doesn’t work, you can sue them in court or hire an aggressive debt collection agency.
Maintaining healthy cash flow is crucial to the survival of your small business. For this to happen, you must ensure unpaid invoices are honored. With this guide on how to collect money from late-paying clients, you now know the steps you need to take.
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