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9 Strategies for Handling Late-Paying Clients (without Destroying Relationships)

9 Strategies for Handling Late-Paying Clients (without Destroying Relationships)
January 20, 2020 gnuworld
late-paying clients

The average time it takes for debtors in South Africa to settle their bills increased dramatically in 2019 – and it’s hitting small businesses hard.

According to recent financial statistics, the total number of outstanding debtors’ days rose to a record 66.4 in Q2, from 65.5 in Q1 and levels of below 60 in 2018.

Late payment forces SMEs to close

SMEs are being forced to close their doors because neither big business nor government pay invoices on time, and sometimes they don’t pay at all, reports fin24.

Some companies intentionally delay payment for tax reasons in the lead-up to the start of a new tax year.

Impact on SMEs of late payments

Small businesses need predictable cash flow to gain traction, pay their employees, market their products and services, and invest in their businesses.

Delayed payment disrupts this and makes conducting – and staying in – business extremely difficult.

1. Don’t avoid contacting your client

Managing late payments can be hard, especially when you don’t want to appear rude, but it’s essential.

Make personal contact with the client paramount. Find out who in the accounts department makes payments and ‘befriend’ them.

2. Set terms early in the working relationship

From the beginning of business, create an invoice detailing payment terms, which includes when payment is due.

Create your own terms – payment up front, 50% of the total cost up front or the standard 30-day terms – and stick to them.

State on the invoice when customers will be charged a late fee.

It’s common to charge a 5% delayed payment fee if the invoice isn’t paid within 30 days. The 5% is added every 30-day period the account is not paid until it’s received in full.

3. Invoice immediately after a job is completed

The sooner the client receives an invoice, the quicker it becomes part of the company’s accounts and payment cycle.

You’re far more likely to be paid on time if your invoice is submitted timeously.

4. Follow first late invoice with an email or phone call

It’s never easy directly contacting a client for late payment, but don’t delay following up when a payment is late.

Send a quick email or make a personal call to find out if payment is on track.

Don’t come across as aggressive. Use words like ‘friendly reminder’.

Customers will pay clients demanding payment ahead of companies that do nothing.

5. Start invoicing twice a month

For a consistently late payer, invoice twice a month, even weekly.

The more visual reminders the client gets that you’re chasing the payment, the more likely the client is to pay.

6. Enquire about the reason for late payment

There may be a legitimate reason for late payment, so ask.

If there’s a good reason, work out a reasonable payment solution that suits you and your client.

Late payment is better than no payment.

7. Employ an accounts service

If handling your accounts is awkward and time-consuming, employ an accounts service or online personal assistant to handle them for you.

8. Keep records of all communication

Your accounting software should enable this, but make sure you keep records of all correspondence, invoices, contracts, emails, telephone calls and attempts to obtain payment.

Legal action may become necessary to enforce payment. Detailed documentation and records would help your case.

9. Stop doing business

If a client is regularly late and all attempts to achieve a regular payment schedule fail, then you may have to down tools and stop working for that client.

It’s hard to give up a client, but a company cannot stay in business without payment for services. It’s the bottom line.

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