It almost seems bad for business to turn away orders and to say no to more custom and work. However, when those customers you are saying no to are stretching your agreed payment terms and delaying payments for unknown reasons, they’re not helping your business grow; they’re helping it to fail.
Ending a customer relationship entirely should always be a last resort. As an interim measure and proven to be fairly effective, placing late payers on stop can be the best and most appropriate business decision you can make.
However, we understand that this is often easier said than done. And for SMEs putting companies or individuals on stop can seem like a daunting prospect, especially if the value of the order is high or it is a good brand association for you.
However, you need to think about you.
Your business.
Can your cash flow continue to cope with late payments without you taking control of the
situation?
To help, the team at Direct Route has put together some key strategies that help to avoid unpaid invoices and even encourage customers to pay faster.
How to deal with late paying customers
Communicate
Open and transparent lines of communication are vital to ensuring you get paid on time, every time. Not only this, but building relationships with your customers can prove invaluable for business – leading to customers paying their invoices on time AND ordering more goods and services from you too.
Build into your credit control processes, courtesy, and follow-up calls where you can keep invoices and amounts owed at the forefront of everyone’s mind.
Put late payers on stop
Rather than refusing all future orders altogether, placing those whose invoices are overdue on stop can be a welcoming compromise.
Being placed on stop means they can no longer order goods or services from you on credit until their outstanding invoices are settled in full.
Again, as a compromise, if the full payment is made there and then, allow the next order to be placed asap, with the same credit terms still applied.
Include late payment charges
You are entitled to charge interest on all late payments. What’s more, you can also include late payment charges, which can cover the cost of debt collection fees if you later choose to go down this route.
Late payment charges and interest must be clearly detailed in your contract terms and conditions.
Offer discounts
Everyone loves a discount, even in the credit industry, and in some cases offering a small discount to customers if they settle their invoice early can avoid late payments altogether.
We would advise you to build this discount into your pricing model, where such incentives can help to secure your bottom line and support your cash flow
Ask for a deposit upfront
If orders are above a specific value, or you are aware of a particular customer being a late payer, you can ask for a deposit to take and secure the order.
Have a robust credit control process in place
You’ll be surprised how many businesses don’t have the right processes and procedures in place to collect on those accounts that state “invoice unpaid” or even a system to chase invoices.
Having a robust credit control function helps to support the smooth running of your business’s finances.
As part of this function, you must carry out credit checks on customers before agreeing on credit terms and have stringent terms and conditions, including timescales, details relating to later payment charges, interest, etc
Use a professional debt collection agency
Involving a professional debt collection agency can be the most effective and efficient way to get the desired results. Experienced debt collectors have the expertise and the processes to get the job done. In addition, working with a third party also helps to preserve the relationship you have with your customer, as the responsibility of collecting the overdue invoice is in someone else’s hands.
Benefits of putting late payers on stop
- It can prevent further late payments – trust us, late payers will never change if you keep letting them get away with it.
- It shows your authority, and people will respect this.
- It enforces better payment practices.
- It protects your cash flow and, ultimately, your business.
Protecting your business and cashflow
Late payment inevitably affects your cash flow, especially as you still have invoices and payments to make. Late payments also put a strain on your everyday activities, AND chasing invoices takes a lot of time and resources – time and resources that you could spend on other revenue-driving areas of the business.
At Direct Route, we have tried and tested practices of dealing with unpaid invoices and very late payments. Working as part of your credit team or as your entire credit control team, if you’re looking for additional support with late payment, call us today on 0330 229 1991 or email your requirements and questions to memberbenefits@directroute.co.uk.