Cash flow is the backbone of any business. Without cash, your daily operations will stall and, as CB Insights notes, you might be forced to suspend or close your business. The biggest threat to cash flow is late payments. Anyone can be a late payer, even the best customers. Reasons for late payment vary ranging from tax reasons to financial hardship.
eSEOspace understands the role of good marketing in boosting cash flow. In that same vein, retrieving late payments from customers without ruining the relationship is also crucial to cash flow. Continue reading to find out how.
The cost of late payments
In an ideal scenario where all your customers pay their invoices on time, you’d have a 100% accurate cash flow forecast all year round. Your bills would always be paid on time, and making important decisions such as whether to increase or scale back on expenses would be easy. Unfortunately, Ordermentum points out that we live in an imperfect world where late and non-payments are common business challenges.
It does not matter if the reason for a late payment is legitimate or not. When customers fail to make their payments on time, a cash flow gap, which places unnecessary stress on your business, is created. Keeping up with daily operating expenses and payroll becomes a challenge. To keep your business afloat, you may be forced to chase down late paying customers, and this may result in breaking down of relations.
To run a successful business, you have to find a balance between handling late payments and maintaining a good relationship with your customers.
Identify customers of concern
Identify who is paying late. Keep track of payments made and take note of any that are unpaid or paid late. These records will help you chase down late payments and decide if it’s time to cut ties with customers who are costing your business too much. Quarterly records should help you identify whether late payment is limited to a few customers or if it is a company-wide problem.
Understand the cause of late payment
Understanding the reason behind a customer’s late or no-payment can inform your strategy of collecting your dues and preventing late payments in the future. Common types of late-paying customers include:
- Large corporations: These entities typically have payment schedules that differ from small and mid-sized B2B companies.
- Unhappy customers: Dissatisfied customers are not quick or willing to make payments.
- Customers with financial challenges: A customer may be willing but unable to pay on time due to cash flow issues.
- Customers with no intentions of paying: It may be difficult to identify such customers until it is too late.
Effective follow-up strategy
Consider the following strategies when following up on payments that are past due.
- Ask for payment: The first step is to simply ask. A late payment could be intentional but in some cases, it could be as the result of a genuine reason such as a clerical error, misplaced invoice, or forgetfulness. Send a friendly reminder shortly before and after payment is due.
- Automate late payment reminders: Having an automated system send reminders eases your workload and saves you and your customer from losing face.
- Use an intermediary: Before you consider legal action, use a neutral intermediary to find a solution when you’ve exhausted all other options.
To avoid the lengthy and expensive proceedings associated with recovering late payments, you can employ the following preventive strategies:
- Ask for payments upfront: This eliminates clients who are not serious and the need for invoicing.
- Communicate your expectations clearly: For a mutual level of convenience, communicate all your payment details and expectations before you start working with a client. This entails writing a clear customer contract that cuts out excessive legalese and includes negotiated terms with the decision maker.
- Suggest good tools: Some customers may be in need of digital tools to help them track their obligations. Offer to help them understand third-party apps that use a bank account balance API to provide them real-time financial information.
- Send plenty of notices: Sending multiple copies of contracts to clients so you can be sure they have it helps keep everyone on the same page when it comes to payment schedules. You should give them a hard copy as well as send a digital copy.
- Early payment discounts and late fees: These can be powerful motivators to encourage timely payments.
Late payment is a challenge that can cripple your business if not addressed. Limited cash flow can hurt your business but losing customers due to aggressive payment collection methods is also not ideal. Use the strategies above to strike a balance.
eSEOspace can help your business grow using a combination of strong website design and top-notch digital marketing. Learn more by calling (805) 500-3736.