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How to deal with late paying customers
A burden for businesses and self-employed professionals alike, here’s what to do if your cash-flow is taking a hit due to late-paying customers.
Offering credit as a payment method can encourage customer loyalty, but it doesn’t come without risk to your business. It’s not uncommon for customers to delay payments or skip them altogether. Zurich’s research finding that over half (53%) of the UK’s small businesses are owed approximately £225bn in outstanding payments.
Outstanding invoices are frustrating for all businesses, yet they’re more detrimental to smaller businesses with limited cash-flow. A string of late or non-paying customers will culminate in ‘bad debt,’ which negatively impacts a business’ credit ratings and can prevent that business from securing its own credit in the future.
If you are owed payment from one or more of your clients, here are some useful tips on what you should do:
Utilise online tools
Do you have an effective process in place which enables you to monitor customer payments? You don’t need to do everything manually. Save yourself time (and therefore money) by using online invoicing tools. This software will remind you when invoices are due to be paid and will flag any late payers immediately, allowing you to deal with them in a timely manner.
Similarly, for a small fee, you can take advantage of online credit checking services. This allows you to determine whether a prospect is likely to be a late payer or not.
Take action immediately
Take action as soon as you notice that a customer hasn’t paid their invoice. Contact the customer by phone, as this encourages a more immediate response compared with emailing or sending a physical letter.
It’s important that you are friendly yet firm in your approach – you don’t want the customer to get the impression that you’re a push-over, neither do you want to come across as rude. Whilst on the phone, explain that they missed their payment and agree on a date for the sum to be settled. If the customer cannot state a date there and then, tell them you’ll call back tomorrow.
Many businesses give up after making several attempts to collect money, but it’s really important that you remain pro-active and persistent. After all, you provided a service and should be paid for it!
If the customer fails to pay you by the agreed date, call again to ask why the invoice hasn’t been paid. You can also send reminder emails, one on the day the payment was due and then once every week until the sum is settled.
Whilst it’s important to be wary of customer excuses, you may discover your customer is in financial difficulty. If this is the case, and they are a valued customer, be empathetic and arrange a time to meet with them and discuss alternative payment options, such as an instalment plan.
Consider withdrawing your services
If one of your customers regularly misses payments despite not having any financial issues, then you should consider whether it would be more beneficial to cut ties with them. Chasing payments is costing you time and money, so ask yourself: are they really worth it?
Chasing payments needn’t always be the business owner’s responsibility; besides, you have a lot on your plate already. You might have someone in your team who’s good at negotiating. If so, delegate the task of chasing payments to them and make it part of their daily responsibilities.
If all else fails, take legal action
No matter how hard you try, or how much patience you have, sometimes customers just won’t budge. If this happens you should consider taking legal action, particularly if the amount owed to you is significant. Seek advice from a solicitor – often, the first course of action will involve sending a formal letter of claim to the customer, which will hopefully be enough to encourage them to pay their invoice.
Invest in credit protection
If you want to safeguard your cash-flow, you should invest in credit protection. Credit protection acts as a safety net for businesses, ensuring you always receive full payment for customer invoices.
Fiveways Insurance can arrange complete insurance packages for a wide range of professional services, complete insurance packages and credit protection policies. Get in touch on 01952 812 380 or email email@example.com to find out how we could help you.