Late paying customers are a real headache for businesses, be them large or small.
When a customer continually stretches their payment terms, it can put a business at risk, and whilst it may not be a favourable decision to stop doing business together, it may be worth considering whether keeping on a late paying customer is really worth it, especially in these challenging economic times.
Recent research from Barclays bank has reported that 80% of businesses experiencing late or no payment would refuse a potential new customer if they knew they were poor payers. However, many businesses do not put this into practice and therefore set themselves up for a fall.
Here we look at ways to help customers who do not pay on time, to adhere to their contractual agreement; enabling you to keep your cash flow going.
Keep the lines of communication open
Building a rapport with your customers rather than just a transactional relationship is important as it does not just increase the odds of getting paid on time, it can also encourage them to purchase more goods and services from your business in the future. Talking to your customers on a regular basis helps support a relationship and can keep the invoices they owe at the forefront of their mind.
Consider offering early settlement discounts
Offering an incentive such as an early settlement discount could prove favourable for some customers who do not pay on time. It will hopefully encourage them to act on their overdue invoice(s) and pay them promptly. Of course, this means you are not getting the whole amount you are owed but a slight discount can be the difference between getting paid or not, and it is better for your business to be paid the majority of an invoice’s value early than it is to receive the full amount outside of terms.
Compile a stop list
Placing as business on a ‘stop-list’ is an alternative option to not accepting any further orders from them. You can inform your customer that they will be placed on a stop list that no further goods or services will be provided until any outstanding invoice is settled, and also that if you so choose, no credit terms will be offered ongoing. It can appear to be detrimental to your business relationship with said customer, however it should instil some authority that you will not tolerate overdue payment without action being taken. You could even ask for the full amount to be paid when placing the order.
Apply interest to your transactions
Businesses are legally allowed to charge interest of 8% on late payments and can also claim debt collection costs of between £40 and £100, depending on an invoice’s value. Applying interest helps remind a customer of your significance - and it’s worth including it in your Terms & Conditions so that they are fully aware that you can enforce this. Ultimately it could encourage customers to prioritise your invoices ahead of others.
If your business has late paying customers and you are considering cutting ties, it may be worth putting the above into action. If you still have issues with non-payment of invoices, Controlaccount can act on your behalf to recover monies you are owed in a timely and effective manner. You can contact us here.