Disaster Prevention for Late Payments:
Sometimes late payments may be the fault of the business owner and not the customer. Customers delay payments if they are not satisfied with the merchandise or if they receive unsatisfactory customer service. Addressing customer complaints can speed up payments and maintain a profitable business relationship. Of course, there is always an occasional bad customer, but customers should not be attacked angrily for late payments. This can ruin professional relationships and cause you to lose a valuable client.
You may save yourself the hassle of dealing with problem clients by screening them ahead of time. Running a credit check can save you time and money in the long run. Some companies offer affordable credit check rates to small business owners. The information you receive from a credit report will help you determine whether or not you want to risk taking on certain clients.
If a bad customer makes it through the screening process, you have no choice but to stop supplying that customer until they are compensated. This is not a step to take lightly, but it may be necessary. For example, a customer who is three months late in payments should not benefit from your products or services for free. If bad customers know that they can get a product without paying for it, they will take advantage of the situation.
It might even be necessary to seek professional collectors in extreme cases. The potential loss of a customer may seem like a bad business decision, but keeping a customer around who refuses to pay is even worse. Bad customers are just a waste of time and resources, and it’s always best to eliminate them.
Let your customers know your payment rules:
Always outline your billing procedure and maintain a bribery fund. While this may seem basic, too many small businesses don’t enforce these rules. The clear description of your billing and payment policies leaves customers with no excuse for paying late.
The policy should explain acceptable forms of payment, as well as the dates and times that payment is expected after billing the customer. It is important to adhere to these policies once they are established. Breaking your own rules will not motivate your clients to adhere to them. You set the standard, and if you wait a month to send an invoice, you don’t create a sense of urgency for your customer. Set aside some time each week to submit new invoices and keep track of the ones that are currently issued.
It might also be wise to initiate a 3% penalty on late payments. This serves a dual purpose: it gives your customers a greater incentive to pay on time, in order to avoid the penalty fee, and it also helps to nullify the effects of check cashing fees or cover the bank’s own late fees. .
A bribery fund acts as a reserve and provides a cushion in case a customer is a few days late on a payment. This will help you keep up with your payments while looking for what is owed to you. A good rule of thumb when setting up a bribery fund is to keep a reserve large enough to pay for rent, wages, and utilities for at least a month. Hopefully, you won’t have to use it, but you can avoid being labeled a bad customer.
Unfortunately, late payments are unavoidable. Even with careful scrutiny and clear guidelines, clients occasionally “forget” to pay on time. There is nothing wrong with chasing down payments as long as it is done in a professional manner. Often times, a courteous email or phone call is all that customers need to remind them and resolve the issue.
Make it easy for customers:
Some companies benefit by offering incentives for early payments or payments made on time. Offering financial or service benefits to clients who pay on time makes sense. Not only do you give them an additional reason to pay their bill, but you also foster customer loyalty and you want loyalty from customers who pay their bills on time. A two percent discount payable within 10 days of receipt of the invoice is typical for many businesses. However, finding more creative incentives, such as good rewards for customers, can set your business apart from others.
Accept as many forms of payment as possible to make it easier for customers to settle their invoices. Businesses that only accept cash or guaranteed funds do not make life easier for their customers. People rarely carry cash, and guaranteed funds, such as money orders, are not free and take up valuable time. While fees (up to three percent) are typically assigned to vendors who accept credit cards, these may be worth investigating, especially if you have customers who use credit card rewards.
Additionally, banks are competing for small businesses and may have some affordable options that make your life easier. Look for the option of electronic transfers. This makes it easy for customers to pay their bills and makes solid business sense if you have multiple repeat customers.
Talking about late payments with clients is never pleasant, but it must be done. There is no reason to threaten or get impatient. However, there are many reasons to collect what is owed. Remember that late payments affect cash flow, which determines how long your small business will survive. Given the uncertain economy, small business owners need to be especially careful when monitoring their payments and cash flow.
To learn more about how Bridge Capital can provide accelerated cash flow solutions for your business in the Suffolk and Nassau area of Long Island, NY; Visit our website for more great information at http://www.bridgecapitalsolutionscorp.com
