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Late payments can be a particularly tricky issue to deal with, especially when trying to establish and maintain a small business. This article will outline strategies for small business owners to prevent late customer payments. It will also guide you in handling late payments. These strategies include establishing written agreements and persistently following up on overdue payments.
1. Write it Down and Keep the Records
The best way to deal with late payments is to handle the payment process proactively from the start of your working relationships with customers. This approach includes sharing written agreements with customers and documenting your communications.
Clearly define your expectations in writing, including payment terms and the date you require each payment. Send out invoices promptly after providing goods or services. The sooner you send the invoice, the sooner you can expect payment.
Ensure you specify late payment penalties. Communicate the consequences of late payment, including any late fees or interest charges. Furthermore, make sure that you enforce these penalties politely but consistently. In your proactive approach, follow up on overdue payments. Send a polite reminder before the due date to ensure your customers know their payment obligations.
2. Establish Good Relationships With Customers
Another way to avoid late payments is to build strong customer relationships. Open, transparent communication can lead to a better understanding between you and your client. Furthermore, clients may be more likely to prioritise making timely payments.
One way to solidify a customer relationship is to reward early and on-time payments. Discounts with early payment, for example, can incentivise prompt payment.
Also, before entering into business relationships, especially where there is a potential that customers will make significant payments, it can be crucial to perform credit checks. Credit checks can help you identify clients with a history of late payments. With this information, you can adapt accordingly, perhaps requiring some clients to pay in full earlier than you typically require others to send funds.
If you notice an existing customer is regularly making late payments, consider whether you want to keep working with them.Continue reading this article below the form
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3. Offer Alternative Payment Methods
If you think a customer’s payment is overdue, check the terms of your agreement or invoice. This small step avoids damaging your relationship based on a misunderstanding if the date you set in the invoice differs from the payment date you were thinking of.
If you notice the customer has exceeded the payment date upon checking the invoice, you might provide them with alternative payment options. Various payment options can make prompt payment more manageable for your customers. For example, consider online payment options, which are often more convenient and quick.
If you notice a client is struggling to make full payment, consider negotiating a payment plan. Offering a plan can help them fulfil their financial obligations over a set period by breaking large payments into smaller, more manageable amounts.
If polite reminders and negotiations are not yielding results, consider escalating your communication. Clearly state the consequences of continued non-payment, including potential legal action.
4. Know Your Next Steps
Adhering to the best practices this article suggests can help to mitigate the risk of late payment. Maintaining clear communication and a professional approach is crucial when handling payment processes. You can tailor your approach to each client and situation, depending on your relationship and the terms of your agreement.
While you can take steps to avoid late payments, whether or not a customer pays on time is often out of your control. You can take more assertive steps to address the situation should it require escalation. Legal action is generally a last resort due to the associated costs. However, you may need to consider legal action if a customer defaults, for example. Consult a lawyer to understand your options for pursuing unpaid debts. They can guide you on whether sending a demand letter or pursuing further action is appropriate.
Afterwards, reflect on situations of late or non-payment and assess whether there are adjustments you can make to prevent similar issues in the future. Perhaps you notice you could adjust your business’s approach to invoicing, payment, or credit control processes.
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Late payments can be difficult situations to handle as a small business owner. This article has covered some essential steps in mitigating the risk of late payments and the next steps where there is non-payment or consistent late payment. These include the following:
- keep records of communications and ensure your invoices set out payment terms clearly;
- establish solid working relationships with your customers;
- follow-up on unpaid invoices promptly;
- offer alternative payment methods; and
- understand potential next steps and consult a lawyer if necessary.
If you are a small business owner who needs advice about late payments, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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