IN ORDER TO keep a business running smoothly, it is important that customers clear their invoices on time. Late paying customers can be an obstacle to the success of any business that deals in credit as they will affect the cash flow in a negative way. This is simply because if you have many late paying customers, you will lack money to run your daily businesses. Many businesses see overdue customers clear their invoices in one or two months. This is not a good trend as it may deteriorate the operations of the business unless the business owner as enough financial reserves.
The dilemma is that, with the effects of the economic recession being felt across commerce, some customers might not pay their bills on time because they simply can’t. Money is tight and a lot of businesses are struggling right now. In the days when you could slap your late-paying customers with a late fee to show them that you meant business, they usually “remembered” to pay their bill on time from that point on. However, with the struggles of today, if you were to issue a late fee to a customer who doesn’t pay his bill on time, he or she might pay it, but then never come back. Here, you are faced with the dilemma: do you accept payment late without a fee, or risk losing the customers’ business altogether, leaving you with nothing?
So, what’s the answer? What should I do?
Until the market recovers, prepare yourself for late-paying customers. Many business-owners haven’t realized the state that their customers are in and still charge late fees, chasing customers away. While repetitive late payments are probably just causing more harm than good, keep track of your customers’ payment history, and don’t be afraid to cut a good customer some slack if they have a bad month. Utilize open communication and work with your customers on payments. This will build a personal relationship and instill loyalty in your customers.
It is good for business people to come up with a strategy of dealing with late-paying clients as this is the only way of keeping your business alive. Be aware that some customers may be holding your money as they are suing it somewhere. If you sell to distributors, keep in mind that your customers might be waiting to collect from their late paying customers. Some of them may be using it to clear the debts they have accumulated. One thing you need to bear in mind is that when you allow customers to take products on credit, you are offering them interest-free loans.
There are a number of strategies that you can put in place to manage late-paying customers without chasing them off. The first strategy is to improve your credit offering services. Know the kind of customers that you can give products on credit by obtaining the credit records of the customers. Once you have this report you will be in a position to know how each customer behaves when it comes to credit. It is good to know the payment patterns of certain customers before you grant them credit. As before stated, avoid those customers who consistently fail to pay their bill on time.
Having a committed collection effort is recommendable. This shows that you run a tight ship and keep a close eye on your finances. It is not good to relent when it comes to following up your creditors. Remember, you are the lone controller of your business. You should therefore be on the forefront to keep track of the customers who owe you money. If you don’t want to lose the customers, the follow-up should be done in a polite manner as you probably don’t know their situation.
Call customers and offer a “friendly reminder” before the payment due date. This should be done in a courtesy way and should act as a reminder that time is running out.