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Relationships With Late Paying Clients
Picture this: your customers pay you on time. You have excellent cash flow that helps you make critical business decisions, and you’re able to pay your vendors on time. The reality is very far from this scenario—every small business owner knows that invoice time equals difficulties! But blatantly demanding that your customers pay doesn’t work either, as you need to ask for the payment without damaging that critical customer relationship.
If you’re looking to collect your overdue invoices on time (and prevent late payments in the future) while retaining customer loyalty, keep reading. We walk you through the main tips for success.
Setting Up Clear Payment Expectations
To ensure customers pay you on time, you need to set up expectations from the get-go. Business owners often assume that customers are on the same page regarding invoice due dates and other important information. However, it is best to set specific payment terms at the beginning of every working relationship. This way, they can let you know if they need different terms—for example, the option to pay later or pay in installments. It is essential to ensure your payment terms are fair and standard to your industry.
By setting out clear communication, you’re less likely to run into trouble down the line. And because it will be agreed to in writing, your client cannot use ignorance as an excuse for late payment! You’ll also avoid the guilt that vendors face when it comes to constantly demanding payment.
Start With a Reminder
If a client has missed a payment, start by sending out a friendly reminder. This will remind your client of the terms they’d previously agreed to, as well as alert them in case they got caught up in other things. Keep your tone polite and professional, and be sure to send the reminder right after the due date.
Remember also to include information on how to make the payment, when it was due, and the accepted payment methods. Sending them a copy of the invoice is also helpful as sometimes bills can get lost or mislaid.
Make the Clients Payment Process Easier (for them and for you)
Often, people are just plain lazy when it comes to paying bills. So, to ensure your clients keep coming back for more, try to make their payment experience easier. Finding small ways to make a client’s life easier will go a long way in them choosing your services again.
One way to do this is to use software to handle invoicing. With the right tech tool, you’ll be able to automate monthly invoices as well as set up reminders for late or missed payments. This takes a lot of the manual work out of the process, leaving you the time to focus on more important things. The right software with instantaneous bank account authentication will also make payment processing more accessible, as diverse payment methods will become easy to accept. This can ensure you get paid faster, with your customer happier. Win-win!
Directly Discussing the Issue
Customer loyalty is key to every successful business. Maintaining a positive relationship with your client is critical—and the best way to do this is to appeal to their human side. Payment reminders are great, but getting on the phone and having a real conversation is even better. Be sure to communicate your terms and offer a resolution process. Try to be optimistic about the customer’s situation and don’t jump to negative conclusions and. After all, you don’t want the process to turn sour, as that could potentially lose you a customer.
One excellent resolution to propose here is the idea of a personalized invoice schedule. This is a good move because it demonstrates empathy while getting you your hard-earned money. Adjusting your invoicing schedule is easy to do on the back end—so look for other such options which feel collaborative rather than deterrent (as with late fees).
Offer Incentives for On-time Payments
Fixing current invoicing issues is a temporary problem. But how do you tackle late payments in the future? To prevent the exhausting and unpleasant process of chasing payments, take the time to set up incentives to boost on-time payments.
We all know that customers love discounts—so offer a light discount for payments made early or on time. Remember to provide a value that you can afford without impacting your bottom line to avoid cash flow mistakes. Another incentive option is to offer installment payments to those who make the payment well ahead of time. If you’re undertaking a one-off project, you could also request an advance to get the relationship going and build trust. We highly suggest not using withholding work as a tactic—as it can come across as rude and potentially damage customer relations.
Consider Your Customer's Overall Value
Sometimes, even after all the effort, clients may ignore you or refuse to make the payment. At this point, it's time to assess the importance of the client and what their relationship is worth. Small claims court is a cost-effective way to get your payment. But consider if receiving your amount is worth the legal effort and time investment. And this course of action will likely irreparably damage client relations too!
Similarly, if the payment amount isn’t significant and the client is unwilling to let go—perhaps it's time for you to let go. This opens up the opportunity to find new clients who will pay on time, rather than wasting your valuable effort chasing demanding customers. Remember—time is money—so be picky about what you choose to spend on.
Every business has to deal with defaulted or missed payments at some point. But a late fee isn’t just an annoying or awkward business transaction to deal with—it can have implications on your business growth. Every company needs working capital to keep things going, so ensuring that you get your invoices paid on time is just prudent business! Don’t let late-paying customers hold you back—unlock your cash flow potential today!
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