Are late payments crippling your business? Why do customers think it is ok to pay late? What can you do to encourage people to pay on time?
Firstly, let’s look at the ugly of late payments, what could possibly be the reason people pay late? There are multiple reasons why people are struggling to pay you.
According to a study by Xero, late payments can be attributed to the following reasons:
Customers are waiting to be paid
This could be a perpetual circle where you are waiting for payment because your customer is waiting for payment and the person paying your customer may also be waiting to be paid. 24% of late payments are caused because of this reason.
Customers are disorganized
23% of customers acknowledged that their accounting system is disorganized and they were unsure about who they owe money to and when they need to pay them.
Customers have their own payment terms
This is probably the worst. The customers have not acknowledged your payment terms and have put their own payment terms in place for when they have decided they can pay you.
All these reasons are not good. And what effect will late payments have on a small business? In South Africa where small business is a major contributor to the economy, late payments are highly detrimental. They can cause small business to collapse and they will also prevent business from entering certain markets. The main industries affected by consistent late payments are healthcare, manufacturing and utilities, architecture, and engineering and building. These industries spend 1,5 to 2,6 days following up on late payments.
But there is light at the end of the tunnel, there are things you can do and companies who are fighting for small businesses. Here are five ways to curb late payments from customers:
Do a detailed credit check of your customer
Before going into business with someone, you may benefit from doing a credit check on the business and look at their financial history. Depending on the value of the potential client you could invest in a business check.
In addition, you could consider dealing with customers who have signed the prompt payment code from the NSBC. Companies which have signed this code have committed to paying suppliers on time, giving clear guidance to suppliers about how to invoice them and encouraging good practice by promoting the code through their supply chains.
Be clear about payment terms
Make sure you let your customer know clearly about what the payment terms are before you start to do business with them. You could even let them sign a contract which states your payment terms plainly.
Make accurate and timeous invoices
This is the most critical part to ensure getting paid on time. It is important that all the information on the document is correct. Confirm that you have the correct contact number and email address of the person responsible for paying the invoice. Make sure you send the invoice out directly after the job is done. Do not delay sending out the invoice as this may cause problems when it comes to payment.
Give different payment options
You may benefit by offering your client a few ways to pay. You may ask them to pay by EFT or credit card.
Have credit or savings
If your customer does struggle to pay you, make sure you have a plan B. This could be credit at your bank or you may have some savings stored up for a rainy day.
By following these steps, you could be well on your way to growing your business.
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