How to Collect Late Payments From Your Customers
Although these conversations can be uncomfortable, it’s important to have a system in place to address these situations when they occur. In fact, it’s crucial because nearly one-third of small businesses fail because due to low cash flow.
In addition, if your customers don’t pay on-time, this could hurt your business’s finances. For instance, without projected cash flow, you may be unable to pay your own vendor payments or credit card bills, thus hurting your credit history.
However, a well-defined process can help you ensure that customers are aware of their payment options and any outstanding deadlines, without offending or embarrassing them. Follow the strategies listed in this post so that you can recover payments faster in the future.
5 Tips for Getting Paid By Customers:
1. Send a Reminder Email
The first and easiest step to take when you’re trying to collect a late payment is to send a reminder email. Prior to sending a reminder email, review the customer’s payment history. If they’ve consistently paid on time, it’s very possible they either missed your invoice or forget to submit their payment. However, a polite email may be all it takes to nudge them in the right direction!
Many businesses give their customers a grace period to pay their bills without penalty – often up to 30 days. However, sending an email during this period may be a helpful reminder. Creating an email template in advance can streamline the process, enabling you to hopefully get paid faster!
2. Make a Courtesy Phone Call
If sending an email doesn’t prompt the customer to submit their payment, you may need to follow up with a phone call. Whether you’re making the call yourself or asking your customer service department to do it, the person making the call should follow a script to ensure the message is conveyed effectively.
Phone calls also give you with the opportunity to make a more personal connection with your customers. For instance, you can ask for feedback on the products or services you provided. Asking how you can improve in the future can allow you to build stronger customer relationships, which could ultimately enhance your business model.
3. Contact Another Department
If you’ve invoiced a B2B customer and they’re late on their payment, you may need to contact someone else at the company. Typically, whoever is responsible for accounts payable can give you a better idea of when your invoice was received and its status. If the payment hasn’t been initiated already, politely ask when they plan to pay your overdue invoice, and provide any interest rates that may inflate the price so that they’re aware.
4. Offer a Payment Plan
Sometimes, you may need to work with a customer to reach an equitable solution. If they’re experiencing cash flow issues, offer them the option to set up a payment plan. Ensure that they know what the minimum payment is, and then work with them to create a payment schedule for the remaining amount. This may make it easier for them to pay their bills and for you to recover more of what they owe you.
5. Ensure That They’re Aware of the Consequences
When speaking with a customer that isn’t paying their balance, it’s important to convey the consequences of shirking financial responsibility. For example, if they continue delaying payment, you may need to report them to the credit bureaus. This could affect their credit scores and overall finances.
6. Hire a Collections Agency
If your efforts to recover outstanding payments are unsuccessful, you can hire an agency to collect the debt for you. While this should typically be a last resort, spending excessive time and resources chasing delinquent accounts isn’t a good use of your time.
Once you report late payments, a collection agency will contact the customer on your behalf, typically by phone and in writing. In extreme cases, they may even take legal action. Hiring an agency can be extremely valuable, especially if you’re trying to collect a significant sum of money. However, not all agencies are reputable, so it’s important to do your research and find one that is experienced, professional, and familiar with your industry.
Conclusion: There Are Ways to Get Clients to Pay
Asking for money can be a stressful process, and it’s frustrating when customers don’t pay on time. While it’s important to set payment expectations with customers in advance, delinquent accounts are unavoidable for most small businesses. Having a system in place to recover overdue payments before you need it can ease the burden of collecting debts and make your business look more professional.
Editor’s Note: This post was updated for accuracy and comprehensiveness in June 2020.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.