How to reduce the risk of late payment from your customers
Late payment is an issue that every business that offers credit will experience; if these issues aren’t addressed with each customer it could snowball and have significant impact upon your business’ cash flow.
Check your customers credit risk
Credit checking your customers will provide an insight into the likelihood of a company being a late payer. This does not guarantee that a customer with good credit risk will not become a late payer but should help to identify those that are extremely likely to. Monitoring your customers will also indicate any changes in your customers credit risk, therefore you can be forewarned if they may be at risk of becoming a late payer and you can chase accordingly.
Ensure your invoicing procedures are correct
If your invoices don’t contain the correct information or they aren’t sent to the correct person, then payment will be delayed. When on-boarding a new customer ensure you have a list of: requirements for the invoice (e.g. P.O numbers), you have to correct information for accounts payable, you agree to price and payment terms and any further requirements your customer may have (e.g. they want the invoice by post).
Have a robust collection strategy
Your collection strategy is vital in reducing late payments, ensuring that you chase regularly in a customer focused way will educate your customers over time so that eventually it will take much less time to chase.
Use your customer’s payment history to determine future chasing
When a customer has consistently been late in paying invoices, ensuring they are chased as a high priority following each invoice; for these customers chasing should begin prior to the invoice falling due to ensure disputes, missing invoices, etc. are dealt with quickly.
Consider future trading if your customer consistently pays late
Customers that continue to pay late with no valid reason will pose a high risk to your business, that could potentially lead to a bad debt. Customers such as these should be reviewed to determine if you should stop any future work. The long term repercussions of receiving a bad debt vastly outweigh the impact of one less customer.
Effective credit management is key to reducing the risk of late payment; find out how our consultancy service can help you to improve this function.