How should you approach late payments?
Not being paid on time by your clients is not only frustrating but can also impact your business’s operations.
But this is something that you might experience frequently, ranging from slight delays in payment to extended delays that require persistent follow-ups.
These delayed payments can disrupt your cash flow, so you need to know how to approach them, without jeopardising your business relationships.
Transparent terms
Implementing clear payment terms when onboarding a client can reduce the chance of late payments.
These terms should be brief and straightforward, clearly indicating the expected payment date.
It is advisable to discuss these terms at the onset of any business agreement or within the contractual document, and they should be readily apparent on every invoice.
Prompt invoice generation
The earlier the invoices are dispatched, the sooner they can be completed.
So, it should be a priority for businesses to send invoices immediately following the delivery of a product or service.
Accounting software can help to automate this process and eliminate potential delays or errors.
Offering online payment methods can also be more efficient for clients to settle their invoices swiftly.
Polite payment reminders
Polite reminders that payments are coming up can also be effective to prompt payment on time.
These reminders could be sent a few days before the due date, on the due date, and if necessary, a few days following the due date.
It’s vital to ensure these reminders are always polite and professional, to maintain a friendly rapport with clients.
Late payment fees
Under the Government’s late payment legislation, businesses are allowed to apply interest and debt recovery charges on delayed commercial payments.
The Late Payment of Commercial Debts (Interest) Act 1998 can serve as an effective deterrent against late payments.
However, the potential negative impact on client relationships should be considered.
Invoice factoring
If your business is frequently facing challenges with late payments, invoice factoring could be an option.
This involves a process where outstanding invoices are sold to a factoring company for a fee.
The company then takes responsibility for collecting the payment, which can provide your business with an immediate improvement in cash flow.
The option that is right for you will depend on the extent to which late payments impact your business and your existing relationship with clients.
Need advice on planning for late payments? Contact us.