Do you have a problem getting certain customers to pay on time? Every business that offers credit to its customers faces this challenge, to some degree. Luckily, there are ways to nudge your commercial customers into making a payment without destroying the relationship you’ve worked hard to build.
For best results, try the following tactics before, during, and after a project.
Before work begins:
- Do a credit/background check. If the customer has had problems in the past, you’ll know to proceed with caution and carefully consider how much credit to extend. As you establish a working relationship, you can increase the amount of credit you offer.
- Sign a contract. Make sure the customer isn’t under the impression that they can just stop paying and you’ll stop doing your part, but that each of you are bound by the contract to live up to its terms.
- Require some payment up front for significant fees or material costs. This not only decreases your risk by reducing the amount the customer will owe you later in the project, but it also sets the expectation that you’ll bill regularly and expect prompt payment.
- Ask customers if they would like to pay via credit card, wire transfer from their bank, or even PayPal. Giving customers more ways to pay helps increase their convenience while decreasing the number of excuses they can make for not paying on time. Also, it sends the subtle message that instant payment methods are preferred.
During the project or while orders are pending:
- Offer incentives for early payment. It could be a discount or some other extra, depending on the nature of your business.
- Invoice on time and spell out when payment is expected. With many customers, just being very clear about your policies and expectations is enough to do the trick.
- Don’t wait for payment to be 30 days late to make contact or send a reminder. It’s easy to send polite reminders once a week via email. They keep your company top of mind with the client and hint that late payment won’t go unnoticed.
- Withhold product or stop work on the project until payment is made. This is the nuclear option, and really the last resort, because the best possible outcome is that the customer will work through the (hopefully temporary) cash flow issues and get back to paying on time.
Once you’ve delivered on your part of the bargain and don’t have unfinished work or unfulfilled orders to hold over the customer’s head:
- Talk to the company’s decision-maker about how to make it easier for them to pay. With some clients, it works well to iron this out in between projects when there’s less pressure.
- Send a strong third-party letter. This is a bit heavy-handed, so it may not be the best tactic to use with clients you want to keep. But in many cases, a letter from your commercial collection agency gets the customer’s attention.
- Send the account to your collections agency. This is what you do when all else fails and you want to stop wasting your time pursuing a non-paying customer. When the account is in professional hands, you can get on with your business.
Oddly enough, charging a late fee doesn’t work as well as you might think. Some clients almost see it as an excuse to pay late. They just consider the fee as the cost of having extra time to pay. And typically, a customer who isn’t planning to pay the bill on time isn’t going to pay the late fee, either.
Having a plan in place for dealing with late payments at every stage of your relationship helps you get paid faster — and reduces the stress of dealing with slow payers when you have to.
Improve your last resort payment demands without alienating the customer.