One of the worst parts of running any business is dealing with late payment or worse still non-payment of invoices. Making that phone call to ask for payment could be fraught with difficulty and even the best working relationships can be damaged by making that call.
When considering a new customer, one which has long term potential and one which will take up a large portion of product or your services, it is a sound business practice to assess their viability. No doubt that customer would assess your viability as a supplier. If you discover a not so good credit history, you should firmly and diplomatically turn that business down.
From the outset all credit terms and conditions need to be clearly and simply communicated and agreed to by the new customer. The T&C also need to be reinforced on every invoice issued, preferably with a precise due date. Depending on the product or service you provide, the payment period can differ but just be consistent. Always invoice immediately the product has been supplied or the service has been conducted, unless it is an ongoing process and periodical invoices are issued.
Resist the urge to offer significant discounts to win business in the early days of a new customer relationship, it is better to wait until the relationship develops and offer a discount based on the volume transacted and prompt payment. Offering generous discounts could really eat into your bottom line and then if the customer is slow to pay, what then?
Even with the best intentions and due diligence done, circumstances may change and prompt paying customer may experience their own difficulties and not be able to pay on-time. Having maintained a good relationship with that customer, it should then be easier to make the call and query the late payment. In this case offering favourable terms can keep the relationship on track but know when to back out completely. Don’t be hesitant about making the call, if you provide a quality product or service you have earned the right to be paid.
Any and all communications should be logged in a proper system, scraps of paper just won’t do, if you must write things down, make sure it is a proper diary with times always noted. You never know when proper evidence may need to be presented.
Do regular checks on payments, this helps to identify a customer’s payment patterns and will highlight those invoices which are outstanding in a timely fashion, not weeks after the fact. It is also a good idea to a regular credit check on your more significant customers and if there is a change of management or ownership of their company.
Small to medium businesses need to be especially vigilant. If a check of invoices starts to reveal far too many which are overdue or it is taking too much time to check all of them, consider outsourcing your receivables to a Factor.
A good reliable Factor knows how to quickly determine a viable customer and may already know something of their credit history, this is after all their “bread and butter” business.
A Factor with good systems in place will maintain the history of payments by customers (i.e., accounts receivable ledger); and daily management reports on collections. Invaluable if you don’t have a dedicated team member for this function. It is also possible to login in the Factor’s website and access reporting information on your debtors.
On the other side of the fence, if your business is experiencing issues with cash flow and you can’t meet all your invoices when they are due, this is also an appropriate time to talk to a Factor to get you back on track.