Late payments can have a serious effect on a business for the simple reason that they affect cash flow.
Cash flow is everything to a business.
Without it, then a business cannot survive. Without a steady cash flow, you cannot pay your staff, suppliers, and cannot take care of expenses in your business.
That is why any business owner should know how to prevent and chase late payments.
Preventing Late Payments
Chasing late payments can be one tough task to achieve.
That's why if you are given the option of not having to do it at all, you should take it without even thinking twice.
Here is how you can prevent late payments.
1. Do Your Research
Knowing what client you are dealing with is a great way to avoid late payments.
Find out who exactly that client is before getting into any sort of dealings with them. You might be surprised what you might find.
Asking around or a simple Google search might help you discover if there are complaints about that client or not. There is so much information on the internet.
If you find complaints or lawsuits filed against a particular client, then it is safe to avoid doing business with them.
Of course paying for databases like DNB and Experian will help you gain more information and expedite the process.
2. Have a Contract
A contract protects your business from risks and goes a long way in ensuring that you avoid costly legal disputes.
It doesn't matter how well you know a client or how much you trust them.
Always have a contract in place to back you up in case things go sideways and a client refuses to pay you. The contract should be in writing and should clearly stipulate the terms of the agreement, the preferred payment method, payment deadline, scope of work and the late payment policy.
The beauty of having a written contract is not just in the fact that you will always have evidence, it is also because a client will pay out of fear of breaching this contract.
This will force them to pay up no matter what the circumstances are.
3. Ask for Advance Payments
Asking for a deposit ensures that you get paid a percentage of the total amount a client owes you.
If a client is serious about paying you, they will not get offended by this.
It is a sure way to get paid if a client defaults on paying the rest of the amount. Do not accept to take all the risk by offering goods or services without asking for a deposit.
If you are not in a position to ask for a deposit, then consider having installment fees.
How to Chase Late Payments
Sometimes, even after doing the above to prevent clients from not paying you their debt, they still manage not to pay, leaving you with unpaid invoices.
If that is the case, then you will have to resort to chasing after these payments. If you are faced with this situation, here is what to do.
1. Decide Whether it is Worth It or Not
Sometimes chasing after late payments isn't just worth your while.
If the payment is negligible compared to your annual income and if you might end up spending way more chasing after it, then you should consider writing it off.
2. Follow Up
You should always follow up on unpaid invoices.
Some clients just need a simple reminder, and they will do their due diligence. Send an email or make a call and remind them that they owe you.
Following up should not be confused with harassment. You should know when and how to make the follow-up.
Do it in a professional manner otherwise, you will end up having a lawsuit filed against you.
3. Consult an Attorney
If the case escalates and the client refuses to pay their unpaid invoice, then you can consult an attorney and find out the way forward.
A lawyer will write a demand letter asking the client to pay unless they want a case to be filed against them. It is a way to make them pay you since they will be doing it out of fear.
4. Hire a Debt Collection Agency
Debt collection agencies have one goal-to collect debt. If the client is proving to be very difficult then you should resort to hiring a debt collection agency to collect the debt.
It is one of the surest ways to collect a debt. Debt collectors have the experience, tools, and knowledge of dealing with such clients. They also know the tricks of the trade so it might come easily to them.
Whether you manage to prevent clients from disappearing with your cash or have to resort to chasing them, the above guide ensures that you collect your debt in one way or the other.
The best ways to prevent businesses from paying late:
- Do Your Research
- Have a Contract
- Ask for Advance Payments
The best way to get your customers to pay:
- Decide Whether it is Worth It or Not
- Follow Up
- Consult an Attorney
- Hire a Debt Collection Agency