Late payments – Where do you start if you want to prevent them? Check out these 5 things you can do right now to prevent them from messing up your cash flow.
For anyone involved in credit management, it probably doesn’t come as a surprise that late payments are a problem for businesses of all shapes and sizes.
According to research from YouGov, late payments left UK SMEs £266 billion out of pocket in 2016. Add to that the late payments for larger organizations, and it’s easy to see how much of an effect late payments can have on individual businesses, as well as the economy as a whole.
And it seems that the problem probably won’t be getting better anytime soon. YouGov also reported that one in ten of the business owners surveyed believed that the problem had become worse since the EU referendum. Uncertainty can make people less willing to part with their cash – and with a General Election planned for June, plus the overall political climate around the world, unfavorable economic conditions are probably going to remain for the foreseeable future.
But that doesn’t mean it’s time to hang up your credit management superhero costume and go home. Instead, you need to find better ways to convince your customers to pay you. The good news is that doesn’t have to be as difficult as it sounds, and in some cases, some little changes can make a big difference.
Here are five things you can start doing right now, which should help you to get those payments in more quickly:
1. Set out your payment terms in writing
Make sure your payment terms are in writing and accessible to your entire team, as well as your clients. Sure, everyone may know in the back of their minds that you expect payment in 15 days. But getting that in print will make the rule more concrete and remove any doubt about what’s expected. It will also help ensure your customers are getting a consistent message.
2. Offer an early payment discount
It doesn’t matter if you’re dealing with a naughty toddler, an untrained puppy or a customer who won’t pay on time; research has shown again and again that negative reinforcement just isn’t effective. So, try offering incentives for good behavior. Instead of tacking on a late payment charge after the due date, give clients a discount if they pay on time.
3. Start sending out invoices promptly
Batch processing invoices once a month might seem more convenient, but sending them out as soon as you’ve delivered could yield better results. Plus, it means the business can benefit from a more constant flow of money, rather than the cash coming in waves.
4. Take quick action on unpaid invoices
If a payment is late, get in touch with the client right away. This will help to instill a sense of urgency. If you decide to wait a few days to see if the payment comes in, it demonstrates to the client that you’re not really in a rush for the money.
5. Use the right tools
The right software can help to streamline all parts of the O2C process, while also helping you to automate processes and make the most of your data. If you’re using an out-of-date system or working out of a clunky spreadsheet, take some time to consider the other options that are available – and take steps to get a better system implemented as soon as possible.
Here at OnGuard, we provide specialist credit management software that has been designed to save credit professionals time and help them build better client relationships. Our credit management tools integrate with existing ERM systems and provide a quick return on investment – and most importantly, they can help you prevent late payments and decrease DSO.