How to Chase Late Paying Customers

late paying customers

Maintain Healthy Cash Flow and Client Relationships

Wouldn’t it be nice if everyone paid their invoices on time? Your cash flow forecast would always be 100 percent accurate and you could pay all your bills on time as well. Unfortunately, that is not going to happen any time soon. So, in the meantime, you will need to find ways to chase late-paying customers for payment. It can be awkward chasing customers for money. Especially if you hope to get more business from those customers. Even so, there is no point in winning more business from a customer if they are not going to pay you on time. Here is a quick guide on how to get your money from late-paying customers.

Make Sure That Your Payment Terms are Clear

Make sure that your terms of payment terms are clear before you agree to a sale. Your payment terms should be on all contracts, order forms, and invoices. Your terms should also be available on your website. You should not leave customers in any doubt about what your payment terms are.

Charge Late Payment Interest

It is a good idea to include a provision for charging late payment interest in your payment terms. You may also want to offer an early settlement discount. You may choose to never enforce late payment charges. Even so, if late payment interest is part of your payment terms, you can use that as leverage to get a late payer to pay up.

Don’t Feel Bad About Chasing Late Payers

If you have completed the work or supplied the goods, then you have a right to expect payment. Unless, of course, the customer has a genuine reason to dispute the invoice. You are not being rude or pushy asking for payment. You are only asking your customers to honor their side of an agreement. All businesses chase customers that fail to pay their invoices on time. You are not doing anything wrong or unusual by chasing late payments, so don’t feel guilty or awkward about doing it.

Stay on Top of Your Receivables

It is important that you tackle an overdue invoice as soon as it becomes clear that there may be a problem. If your customer has cash flow problems, you need to get your invoice paid as soon as possible. It is also easier chasing an invoice that is only a few weeks overdue.

Don’t Panic if a Customer is Late Paying

Don’t be too quick to threaten legal action if a customer is late paying an invoice. Your customer may have forgotten to pay the invoice. They may also have been away from the office or been very busy. A heavy-handed approach to collections could mean that you lose valuable customers. It could also give your business a bad reputation.

Begin with a Gentle Email Reminder

Your first step towards getting a late invoice paid is a polite reminder. The best way to do that is with an email. There is no need to use any threatening language in the first few emails. You should, though, make it clear that you expect payment to be made very soon. It’s also a good idea to include a copy of our invoice in case the original has been mislaid.

Increase the Pressure with Follow-up Emails

Once you have begun the collections process, it is important that you stay in touch with your customer. If your customer is short of cash, they are likely to pay the most persistent creditors first. So, to keep your invoice at the top of the customer’s payment list, you will need to send further reminders.

Make a Phone Call

If you have sent two or three reminders and your invoice is still unpaid, it’s time to pick up the phone. Be polite, but be firm. Ask your customer if there is a problem with the invoice and ask when your invoice will get paid. Don’t settle for a vague promise of payment; ask for a specific date. If you are dealing with a large business, you may need to ask for a manager or supervisor. It is important that you speak to someone who has the authority to get your invoice paid.

Send a Letter and a Statement

The next step of collecting a late invoice is to send a formal letter along with a statement of account. At this stage, you will have justification for pursuing legal action to recover the debt. And, if your payment terms allow it, you can apply late payment charges. You should also make sure that the customer’s account is placed on hold so that they can’t place any further orders or additional work will not be done on their account. If you still want to try to maintain a relationship with the customer, you can temper the message a bit and work toward a payment plan. You must, though, make it clear that you will take further action if payment is not received by a given date.

Consider Invoice Factoring

If your invoice is 30 or 60 overdue, you may want consider selling your accounts receivable through a process called invoice factoring. Many growing companies find themselves facing a cash flow gap waiting for customers to pay their invoices 30, 60, and even 90 days. Business owners who turn to invoice factoring for immediate access to capital have found this a fast and easy solution to bridge the gap between invoice and payment. When you sell your invoices to a factoring company, they now collect payment from your customers for the invoices you factor alleviating one more administrative task.

The Bottom Line

Chasing up late payments is never going to be a fun task, but it is a necessary one. The best way to approach it is to begin by assuming that your customer intends to pay their invoice. Then, you can move onto a more serious approach if you need to. Of course, you still need to keep on top of your collections, whatever type of business you are running. In most cases, though, one or two gentle reminders will usually get your invoices paid.

About Universal Funding

Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.

Leave a Reply