Avoiding late payments from customers – Our Top Tips
In September, new research (from Hitachi Capital UK, full article here) showed that almost a third of SMEs (31%) have experienced late payments costing their business at least £10,000 in the last 12 months.
Having dealt with several clients who have experienced a profit squeeze because of late payments, we have put together a list of tips to help you avoid late payments from customers.
1. Pro forma Invoicing. Stuart Harrington, our Client Manager, says “Pro forma invoices streamline the sales process. There’s no back and forth as costs are agreed up front. They’re not a payment demand but your customer will know what to expect and therefore be able to plan timely payment.”
2. Interim Invoicing. Agree to ask for progress payments on bigger pieces of work. We suggest issuing interim invoices monthly, charging for the work done during that period.
3. Set your terms clearly. If you don’t want to change how you invoice, perhaps look at changing your invoice layout. Are your payment terms clear? Be sure to highlight what a customer needs to pay, when they need to pay it and whether there are any penalties for late payments. Displaying this information obviously on each invoice will help to avoid customers paying late simply because they weren’t sure of the payment deadline, and it will also make any necessary conversations about late payments a little less awkward (you’ll simply be reminding them of your clearly stated terms).
4. Shorten your payment terms. Most companies use 30 day payment terms but these are really up to you. Reducing your terms could be an option if you have several customers who repeatedly make late payments.
5. Send out invoices promptly. Making sure you invoice immediately – and accurately – can help to ensure you are paid on time. Sounds obvious, but too often we see that late payments arise from late invoices.
6. Make payment easy. Ask yourself (or ask your customers!) if payments can be made in a way that suits them (not necessarily you). Consider offering more ways to pay, and always include all payment options and details in relevant correspondence.
7. Communicate. Good communication with your customers is key to avoiding late payments. Speaking to them may uncover a solvable problem, or (as is more often the case) a simple reminder to jog their memory may be needed and appreciated. A personal call is always best, but in addition automated reminder emails could save you time and effort.
8. Put clients on hold if they don’t pay. Finally, Stuart adds “There may be occasions when this is necessary. If your full reminder process has taken place to no effect, don’t be afraid to take this step.”
Please call us for further advice on 01642 606003.