The 5 Easiest Ways to Handle Late Customer Payments
Let’s face it: nobody loves late paying customers. Although business owners can take many precautions to help prevent late paying customers, what happens when you get stuck with them? How do you make sure a late payment doesn’t become a missing payment? Knowing how to strategically handle these situations and being aware of your options can give you the tools you need to manage any customer who’s check hasn’t arrived on their payment due date. The following five tips can assist business owners with handling late payments.
1) Remind, Remind, Remind – First things first: tell your customers their late. Not only does this help those that have simply forgotten, but it also lets them know you’re keeping a close eye and won’t let it slide. Send your customers a payment reminder letter and choose your words wisely. Consider your relationship with that customer and the situation. If you have a great relationship with a customer and feel as if maybe the due date has just slipped their mind, send a letter that is friendly, as you certainly don’t want to do anything that could damage the relationship. However, if you have a chronic late paying customer who repeatedly and repeatedly leaves you asking where your money is, it’s best you send them a letter with stern language so they know you mean business. Here’s a great package of sample collection letters that will help you decide which words fit which situation best.
2) Pick up the Phone – If you have sent your customer their reminder letter and still have no response, it’s important for you to get on the phone. Collection calls can be intimidating but at times can be the most effective. Prepare for the call. Similar to the letters, consider the relationship. However, no matter the case, always keep the calls friendly. By preparing yourself beforehand, you make it easier to remain calm and professional, but also not forget your goals. Follow this cheat sheet to ensure you have the most effective collection calls.
3) Work WITH the Customer – If you have been able to get a customer on the phone and they explain that they are simply struggling to get their hands on cash for the moment, find a way to work with them. Look at establishing a payment plan for the customer. Although you won’t receive the entire sum upfront, you will start seeing some of your cash. Sometimes installment plans are literally the difference between you getting paid or not getting paid at all. And as you know, the former well exceeds the latter.
4) Get the Money Elsewhere – If you are in need of immediate cash and your customers aren’t paying, there are ways you can use your receivables to get paid. Look into invoice factoring, which allows you to sell unpaid invoices to factors for a portion of the total invoice amount. Factors buy these invoices discounted and then collect the payment in full. Although you won’t receive the full amount, you will immediately have cash. At times, getting your hands on some money can be more important than getting all the money. You must evaluate what need is most important for you in that moment.
5) Call in the Professionals – Although only to be considered a last resort, sometimes it is necessary to call for help. A collection agency can be just the answer you need to get paid. However, be extremely cautious when choosing a collection agency and make sure you perform excellent due diligence. Look into hiring a commercial collection agency that provides references from past clients. You want to know that they are going to treat your customers well. Also, be aware collection agencies charge large commission fees. Therefore, only examine this option for larger invoices. You need to make sure spending that extra cash to get paid is well worth it on your end.
Although the best measure to deal with late paying customers is to try to prevent them, don’t feel hopeless if a payment is missed. Be detailed and open in your communication and don’t be afraid to ask for help. No matter what, there is a way to get you paid.
Have you had to get late payments from your customers? What methods have worked out the best for your business? 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.