How to Manage Late Payments from Customers

How to Manage Late Payments from Customers

Late payments are not just a headache for businesses, but can also jeopardize a strong financial period. But how do you manage them?

Being paid on time is an essential part of running a successful business but, for smaller companies, it can mean the difference between a strong and a poor financial year.

For many organizations, the matter of being paid promptly by clients is a difficult balancing act. Nobody wants to sour a relationship with clients that pay well or on a regular basis but, on the other hand, if polite reminders aren't being heard, then businesses may need to be more assertive.

So how should a company manage late payments from customers?

Introduce late fees

A company isn't a charity and late payments can cause major problems, so ensure that all customers are aware of the late fee charges that will be applied if the deadline is missed. This information should be included on each invoice so that there is complete transparency between you and your customers, and it should also encourage clients to prioritize your payment.

Send regular reminders

On the invoice, there should be a clear due date for the payment to be made. Send out reminders two weeks, a week and the day before the deadline to give the client a gentle nudge that the due date is approaching. This may sound like a lot of legwork, but most software applications will allow you to create an automated messaging system to remind customers that the deadline for payment is quickly approaching.

Make sure it's not the same copy on each warning though, as it should feel like there's an escalation in importance the closer it gets to the date. You may also want to scale up the authority of the person sending the email so customers get a clear message that you're taking the matter seriously and a payment needs to be made. For example, you might want to send the first email from an automated email service, but the second reminder from the head of your finance team and the last from the CFO.

Make a call

If your reminders haven't been heard, don't threaten the client or get angry, simply call them. It's much harder to ignore someone at the other end of a phone than it is to bypass an email. If your calls to the finance department don't seem to be getting through, get the details of someone higher up - ideally the MD or CFO - and don't get off the phone until you have a firm date that payment will be made on.

Avoid getting angry

Losing your temper with a client that isn't paying after endless reminders is easy but, in most cases, ineffective. Instead of getting angry, try to get to the bottom of what's preventing them from settling the bill. Once you've got to the crux of the issue, you can work with your customer to figure out a payment plan that is affordable for them and ensures you get paid. This may also include adding interest to the amount owed, while pausing any late fees if they meet the agreed schedule. Of course, if they have a rolling contract, you'll want to discuss whether you'll continue to deliver work until the bill is cleared.

Talk to your legal advisers

If none of this has led to payment, it's time to consult with your legal team. You'll want to balance the potential cost of getting legal advice with the debt that is owed, as it may not be worth it in the long run. It may feel like a loss to wipe out the unpaid invoice, but you may be wasting more money - and time - chasing them and pursuing legal action. However, if you do want to go down the legal route, getting a lawyer to write a demand letter can be enough to make them pay what's owed.

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