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5 Things to Do When Your Customer Is Late in Paying You

5 Things to Do When Your Customer Is Late in Paying You

The invoice went out weeks ago, and bills are starting to pile up. You don’t want your customer to think you’re impatient, but you really need to get paid.

Does this sound familiar?

One of the least pleasant aspects of being a business owner is having to chase late payments. It usually means initiating awkward conversations asking for money, writing repeat emails, mailing reminder letters and, in some cases, even taking legal action. This can be even more cringe-worthy when the invoice belongs to a customer who previously had a track record of paying promptly.

It’s simply smart business to develop a set of strategies to deal with late-paying customers. This is because it’s such a common occurrence. In fact, you’d be hard-pressed to find someone in business for more than a year who hasn’t had the experience of at least one overdue account. And, if you talk to a roomful of seasoned business owners, you’re likely to hear an array of horror stories of customers who owed thousands and never paid.

To help you effectively navigate the indisputably difficult task of dealing with late payments, we’ve put together a few useful tips.

Focus on Prevention
An ounce of prevention is worth a pound of cure when it comes to getting paid. If you’re providing terms for a new customer, you should require a credit application with basic information such as address, contact information and tax ID number, as well as references. It can be worth the investment to also run a credit check on them through a reliable provider like Dun & Bradstreet. There are many other credit evaluation tools to choose from, along with social media channels to peruse, which can help you gather the necessary intelligence to determine if a new customer is worthy of being given payment terms.

Once you’ve done your due diligence and a customer seems like a good credit risk, you will then want to be very clear with them on the specifics of the payment terms. This includes spelling out when they need to pay and what the penalties are for late payment. These details should be noted on each invoice to help minimize the awkwardness if and when you have to collect on a late payment.

You’ll also want to make it as easy as possible for your customer to pay you. Offering multiple payment options, along with reminders that include payment details can make the process of paying an invoice easier. If you have a customer who will be getting invoices on regular intervals, offer to set up an automated payment method on PayPal or another payment service provider. Once this is set up, you can rely on a regular payment date, and your customer won’t have to remember to cut you a check.

Automate Late Payment Reminders
Emotions can run high when you’re not getting paid. It’s easy to lose patience and make a call that could jeopardize an otherwise positive, long-term business relationship. One of the best ways to minimize the tension is to automate late payment notifications through your invoicing solution. Many times, you can divert a potentially-heated situation from occurring by delivering regular reminders to jog their memory. Many of these solutions can even enable you to write customized, unpaid invoice reminders that can be set up to be sent until the payment is made.

Talk to Your Customer
No one enjoys discussing a late payment. However, opening up an open, honest dialog can almost always prevent a late payment from going into collections. There is often a very real reason why a customer cannot pay on time – especially when it’s a customer with a good credit history. By launching a conversation about the issue, you may be able to find a mutually-agreeable solution such as changing the payment due date or offering an installment plan.

Consider an Innovative Collection Solution
When you’ve exhausted all efforts to receive a payment from a customer, it’s time to consider using a collection agency to work with the customer to obtain the past-due funds. Without a doubt, collection agency work is sometimes essential to getting paid. Yet, there are some less-than-scrupulous providers out there that use intimidation and even illegal reconciliation methods.

One alternative is using a non-traditional credit collection provider like TrueAccord that is focused on leveraging advanced behavior analytics and modern channels of communication to improve the chance of getting paid. This particular company has innovated the collection process through intelligent algorithms for finding, validating and classifying customers’ online footprint and creating messages that engage customers and lead them in a positive, ethical way towards making a payment.

Have a Readily-Accessible Source of Capital
When you’re dealing with the challenges of a late payment, you certainly don’t need to also worry about not having enough cash on hand to manage your day-to-day business operations. One way to buffer the impact of a late payment is to obtain sufficient working capital to keep operations flowing.

Unlike a bank loan that requires you to start paying interest on borrowed funds almost immediately, whether or not you’re actually using them, a line of credit can be more flexible for those unexpected times when you’re waiting on a late-paying customer. Kabbage is trusted by more than 100,000 small business owners as a source of working capital for paying for necessities like payroll, inventory and other operating expenses. Cash can be available when you need it, and no additional costs are incurred until you actually use it.

Of course, every story of a late-paying customer is different. In some cases, you have a long-term customer who has fallen on difficulty, and you want to help them through this period. Others may be trying to get something for nothing. This is why it’s important to carefully evaluate each customer to determine their lifetime value. Take into account how long you’ve worked with them and the size of their average order. It won’t be difficult to determine who is worth working with and who isn’t.

With a few smart strategies in place, you probably won’t be able to prevent all incidents of late payments from happening, but you’ll be able minimize much of your risk. And, you’ll be prepared for taking the necessary steps if and when you find yourself waiting on that proverbial check in the mail.

Do you have a unique strategy for dealing with a late payment customer? Share your idea with the Kabbage community in the comment section below.

 

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Kabbage Team

The Kabbage Team is here to not only fund the small business loans you need, but to help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at content@kabbage.com.

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