There is nothing more annoying than when a customer misses their payment date. You're left in the position to track them down, figure out what's going and motivate them to pay what you are rightfully owed. But what if chasing payments became something of the past? Seems too good to be true but believe it or not, if you take the proper measures beforehand, you can actually find yourself preventing these kinds of situations (and late payments) all together. Here are a few tips to aid with preventing late payments:
1. Get to Know Your Customers: Credit extensions to customers are a privilege, not a necessity. Although you should certainly keep up the practice to remain competitive, it doesn't mean you need to go around handing out net terms like they're free candy. Always be confident in your customers' payment abilities. Gain this confidence by doing your research. Pull credit reports on your customers to get a general idea of how they've paid in the past. Look at trade references to see how they've dealt with other vendors. No matter what, you should know about your customers before you do any sort of business on credit with them.
2. Make It Official: Net terms should never be a verbal agreement. Ever. The risk of not getting paid is never worth it. Make all your customers apply for credit (which gives you access to the information you'll need for your research) and make sure an agreement is signed that clearly states when and how the customer will pay and what will happen if they don't. Having this in writing will be useful if you ever find yourself needing to chase payments, and it lets the customer know just how seriously you take your credit extensions.
3. Clarity: You must realize how important the invoice is in terms of getting paid. This is the first communication in regards to that payment and customers need to know exactly what is going on. Be as clear as you can in the invoice. Let the customer know the EXACT due date, along with how far away it is. For example, 'Your payment is due in 3 weeks on September 31, 2012'. Also, don't use a lot of unnecessary language. You don't want the most important part to get lost. Let your customers know exactly how they can pay, and let them know what happens if they don't. Utilize this initial communication to really motivate your customers to pay on time.
4. Help Your Customers Out: As we all know, the easier it is to do something, the more likely you will. Consider this with your customers. Make it simple for them to pay you. Look at offering online payments, whether through direct debit or credit cards. Such a small change in your system can mean huge convenience for your customers. Also, don't be afraid to consider installment plans for customers who are having an issue paying. Use your judgment, offering this option only to customers who have hit an unusual rough patch. Allowing them to pay you back little by little will certainly make a difference in your chances of getting paid.
5. Don't Be Afraid to Speak Up: When it comes to ensuring your check will be in the mail, you can never say too much. Begin some sort of reminder system for those customers whom you invoice. If it is a week before payment is due and you haven't received it, send your customers a reminder email, letter or fax. Keep it friendly and warm. They aren't late; you're merely doing them the favor of reminding. They'll appreciate the notice, since we all know how easy it is to forget. If it's the day before payment and still nothing, send another warm, electronic reminder. It's just a little push to stay on their radar, and you'll find most customers who nearly forget the payment get right down to sending you the money.
What precautions do you take to prevent late payments from your customers? Share your small biz diamonds in the comments section below.
Meredith Wood is the Community Manager at Funding Gates, the first ever online credit department for small businesses. By automating the entire debt collection process, Funding Gates serves as the one-stop-shop for receivables management. Always looking for good talk on small business and cash flow management, connect with Meredith on Twitter @fundinggates.
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