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3 types of late-paying customers and how to handle them

Article brought to you by Sage

Most small businesses will have to deal with late-paying customers at some stage. According to our ‘Late Payments: The Domino Effect’ research, 52% of South African Small & Medium Businesses experience direct negative impacts from late payments, like:

  • Struggling to pay bonuses,
  • Being forced to pay their own suppliers late, and
  • Delayed investments into their businesses.

We’ve identified three types of late payers, and offer tips on what you can do before, during, and after the job to get them to pay on time.

Procrastinating Peter

Peter has no reason for paying late; you’re just not high on his priority list. He knows he’s doing it and may even avoid confrontation by ignoring your emails, phone calls, and messages.

Don’t let Peter forget about you. Send regular reminders, not only about the money he owes you, but also about the value you provide.

Our tips for getting paid on time:

Before you start any work, offer an early payment incentive or ask for 50% payment upfront.

During the job, keep Peter updated on progress and respond quickly to his emails, messages, and phone calls. If you’re too busy to send a detailed reply, send him a quick message, acknowledging his query and follow up as soon as possible. It pays to keep procrastinators in the loop – literally.

When wrapping up the job, nudge Peter towards paying. Let him know that the job is almost complete and remind him of the payment due date and your payment terms. In their book, ‘Nudge’, Richard Thaler and Cass Sunstein discuss how regular reminders and ‘herd behaviour’ can nudge people towards certain decisions – like paying on time.

2. Perfectionist Penny

Penny generally follows processes to the letter. For example, she won’t process an invoice without a purchase order (PO) number. This is not a bad thing, since it safeguards both parties. But, sometimes, doing things by the book can result in delays.

Our tips for getting paid on time:

Before you start any work, understand exactly what needs to reflect on your invoice to avoid processing delays, and clearly outline your own payment terms. Ask Penny how long it takes to process an invoice and on which day of the month she makes payments, so that you know when to start following up.

During the job, send Penny regular progress snapshots, first drafts, and work-in-progress documents. This shows that you respect and are responsive to her needs. It also helps her to better project manage the job from her side. Remember, Penny values processes. Respect this and she’ll be less likely to push back, come payment time.

When wrapping up the job, let Penny know about your own processes. When the job is almost done, send her a message, saying how you’ll submit the invoice and what it will include (this shows that you paid attention). This way, she can correct any errors before you submit the invoice.

3. Preoccupied Paul

Paul wears many hats and juggles many balls. While he generally pays on time, some months, things might slip through the cracks. Stay on top of his to-do list by checking in regularly, acknowledging his challenges, and suggesting easier ways to pay you. But be persistent because he’ll quickly forget again.

Our tips for getting paid on time:

Before you start any work, agree on payment terms upfront. You can ask when Paul would prefer to pay, but get it in writing. This way, when you’re chasing payment, it’s less awkward because he’ll know there’s an agreement in place.

During the job, remind Paul about your deliverables and check in regularly to find out if his requirements have changed. With so much on the go, he might forget to update you on changes.

When wrapping up the job, send Paul a mail letting him know that the job is almost complete and will require his approval or feedback soon. If you need to meet to discuss the project, book time in his diary now.

General tips for getting clients to pay on time

When sending your invoice

Use cloud-based accounting software, like Sage One, to automate the invoicing process and reduce errors that could delay payment.

Create a checklist of what your customer requires on the invoice, like VAT number, PO number, address, contact person, etc. As soon as one invoice is accepted without changes, save it as a template that you can duplicate and edit in future.

After the job is done

When reminding your customer that your invoice is due, don’t only talk about money. Provide feedback on how you felt the job went and ask if there are any loose ends that you need to tie up. This again reminds them of the value you provide and helps to build lasting relationships.

Once you’ve been paid

No matter what type of late-paying customer you’re dealing with, always acknowledge payment and send them a thank you note showing your appreciation.

Any conversation about money is awkward. Having these talks and setting agreements upfront makes it less so, and increases the likelihood of customers paying on time.

Sage is a proud Partner of the NSBC