If you have a customer who is late to pay their invoice, it’s worth understanding what’s causing the delay. Learn how to collect money from customers more efficiently by understanding the four types of late paying customer.
Quick takeaways if you’re in a hurry
- There are four main groups that late paying customers fall into. If you can work out which category they sit in you will know how to better manage the follow up.
- Setting up clear payment terms with your customers is essential to making sure that customers understand the obligation around payment.
- Credit checks can be a valuable way to understand whether customers are just late to pay or could actually be a threat to your business.
Read on: How to collect money from customers
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The challenge of late paying customers is one that every business has to deal with at some stage. But not every customer is slow to pay for the same reason. Improving your understanding of why you’re not receiving payment on time can aid you in chasing up your money.
Intrinsic to managing the payment process is to ensure that you are being as efficient in managing your invoices as possible. That requires good processes from your business and great communication with your customers. Payment terms are essential to ensuring that you and your customers are on the same page and have the same expectations.
Typically there are four types of late paying customer. Read on if you want to find out who you could be dealing with.
1. In their own time
The chronic late paying client can be an ongoing challenge. Often it’s the big corporations with 90-120 day payment terms that sit in this category and demand to do everything in their own time.
It can be challenging negotiating payment terms with a valuable customer, and it’s not always possible to get timelines that suit your needs.
This can also be a standard customer who just never pays on time and is straight out unreliable. They may be perfectly aware of when payments are due, but they just don’t recognise the value of paying you on time.
If you’re dealing with long payment terms, consider invoice finance as a solution to allow you to get faster access to your cash. If you’re just suffering from a lack of reliability then consider a credit check. You don’t want unreliability to evolve into non-payment and a credit check may give you an indication of whether this is a risk. You can also consider whether you want to avoid doing business with these customers at all.
2. To be reminded
Some customers are just a bit forgetful, especially when it comes to paying their bills. It’s not intentional, they just have a lot on their plate and you might be struggling to appear on their to-do list.
The best way to deal with these clients is by identifying the person in charge of paying invoices, and making regular contact. Constant reminders and a planned campaign of contact will help to remind them that their bill is due. Consider getting in touch before the due date to start the process early.
These are also a group of customers who may respond well to including incentives and penalties in your payment terms. These allow you to encourage early payment and penalise customers who are tardy with their bills. Basically giving customers a reason to remember your deadlines.
3. To be helped
Unfortunately sometimes businesses hit a financial rough patch and will struggle to pay their bills. Keep your lines of communication open with your customers. If you sense this is happening then consider what solutions you can put in place to move them forward with their payment.
A great idea might be a payment plan system where they can break the amount due into smaller payments that are more manageable in the short term. Payment plans can open up your market as they remove the barrier that cost can become to customers accessing your products or services. Contact Fifo Capital today if you would like to learn more.
4. To be found?
Some customers disappear when their invoices are due. Whether you call, email, fax or send them a letter by post: you’d be forgiven for thinking they’d disappeared off the face of the planet. Set yourself a time limit and persevere.
If they exceed the time limit then it’s probably time to call in the professionals and get a debt collection agency to handle the issue.
Late payment can have a big impact on a company’s ability to maintain cash flow levels. Unfortunately it’s likely that every business will encounter it, and that each offending customer will fall into one of the categories outlined above. The best strategy is to be aware of the challenges you could face and put plans in place for dealing with them.
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