Late payments are a serious stress point for many business owners in New Zealand, especially those who own SMEs or start-ups. For these companies, a positive cash flow is essential for survival and any delay in invoice payments can severely affect operations.
The good news is that there are steps you can take to reduce late payments—the first of which is to understand why your customers are slow to pay. By doing this, you can determine what needs to be improved in your internal processes so you can get paid on time and enjoy more positive cash flow.
Here are some of the most common reasons clients pay invoices late and what you can do about them:
1. They have a genuine dispute.
This may be because the client is:
- unhappy with the product or service you provided
- confused about your payment terms
- unsure how to send you payment
- has a question about the prices or items billed on the invoice.
Double-check your invoice before you send it out. It should clearly state what the client is being billed for and how much each item is. The invoice should also state the payment deadline and the various payment methods you accept. While you’re at it, review your payment terms and make sure they are straightforward and easy to understand.
Also, consider starting your follow-up process early. This way, you can quickly resolve any dispute customers might have with their invoice and ensure timely payments.
2. They misplaced or forgot about the invoice.
Your client might have accidentally filed the invoice away without paying it or the bill might have gotten lost in the mix of emails and letters they received over the past few weeks. Another possible cause is that your customer’s internal accounting practices are not quite organised and they are unable to keep track of their payables.
This type of client requires more attention than others. You will need to follow-up with them more frequently to remind them that their invoice is almost due.
Set up automatic email reminders in your system and have notifications sent to you if those emails are opened or not. As the due date approaches, give your client a call and politely remind them about the bill.
3. They are busy and under-resourced.
More often than not, clients fail to pay on time because they are too busy and are unable to keep up with their daily workload. They may also be understaffed so they had no one keeping track of their unpaid accounts.
To make sure your invoices won’t fall through the cracks, send out regular reminders to clients through email, letters, and phone calls. You can also take this opportunity to offer from advisory support so clients can better manage their payables.
4. They are experiencing financial difficulty.
Unfortunately, there will always be clients who will not be able to pay you back. Perhaps their business is going through tough times due to economic issues or they are in trouble with the government and are facing large penalties. Among the others on this list, this instance offers the highest risk to cash flow.
Be more vigilant about choosing who you offer credit to. Conduct thorough credit checks before doing business with a potential customer. When you do offer them credit, make it a point to constantly monitor their portfolio to see if there are any alarming changes to their credit profiles.
When you identify that a client is going through financial difficulty, take action immediately. Find out if what they’re dealing with is a short-term cash flow issue or something that threatens the survival of their whole company.
From there, you can weigh your options and determine the best strategy to use moving forward. Perhaps you can agree on a payment plan or offer a discount in exchange for immediate payment.
5. They know they can get away with it.
Unfortunately, there are some customers who have less than innocent motives for not paying invoices on time. They may be taking advantage of the fact that you are a small business and are less likely to have a strong debt collections process. Perhaps they have been late-payers before and believe that they can still get away with it again.
Create clearly defined credit procedures for all your clients and stick to the deadlines you set. Be firm and persistent with your follow-ups.
Another effective way to show customers that you are serious about getting paid is to hire a professional debt collection agency like Slater Byrne Recoveries. With our team of debt recovery experts, we can help you deal with delinquent clients and ensure that your overdue accounts are prioritised.
Call us for a free consultation today at 0800 445 870, or send us an email at [email protected].