Why you need to let go of fear and act on late payment
Almost 60% of businesses are put off acting on late payment through fear of offending customers and damaging their reputation, according to new research.
The survey, conducted by Lovetts, revealed that despite having the legal right to claim late payment compensation, 58% of small to medium-sized businesses would not do so fearing it will upset their customers and lead to loss of business.
But, with almost one in four companies being paid on average between one and two months late, can businesses afford not to?
Here we look at 5 reasons why SMEs need to let go of the fear and take action.
1. It’s rightfully yours
Chasing customers for late payment can be daunting but it’s important to remember that you’re not doing anything wrong.
When you supply a product or service for an agreed cost that money is rightfully yours, so you are perfectly within your rights to do all that’s in your power to collect payment.
If charging late payment interest encourages customers to pay up promptly there’s no reason why your business shouldn’t utilise this tool.
2. Speed is vital
Statistically, as a debt grows older the harder it becomes to collect which is why it is vital to take action immediately.
Many businesses hold off chasing late payment hoping that their customers will make the decision to pay themselves. But, unfortunately, not all customers are honest and will try to stall payment for as long as possible. So don’t give them any opportunities to evade paying.
Contact your customers as soon as an invoice exceeds terms reminding them of their commitment to pay you and your company’s procedures should they decide not to. Often, simply demonstrating that you take late payment seriously is enough to encourage customers to pay.
3. It acts as a deterrent
Whilst most customers will respond to polite reminders for payment, others will need a firmer approach to persuade them to settle outstanding invoices.
And, especially with persistent offenders, charging late payment interest can be all that’s needed to encourage payment and act as a deterrent in the future.
Once a customer knows that late payment will not be tolerated they will be less likely to test the boundaries and more likely to pay within terms.
4. Not all customers are worth keeping
It can be hard to strike the right balance when collecting money from customers, especially where there is a long-standing relationship or you are hoping for repeat business.
But never let the fear of losing customers force you into accepting poor payment practices.
Although it’s a hard line to take, it’s always worth considering how valuable a customer they are if they aren’t going to pay.
5. It protects your future
By letting fear stop you from taking action on late payment, you are effectively choosing to protect your customer relationships over protecting your business’s future.
As soon as an invoice exceeds credit terms it begins to impact on your cash flow. Without money coming in on time your business may fall behind on payments of its own, racking up high levels of interest and putting strain on your day-to-day business activity.
Claiming late payment interest is one way of off-setting this additional cost so your business doesn’t get held back by overdue invoices.
The best way to protect your business is to make it clear from the outset that late payment compensation will be claimed if payments are overdue. You can do this by updating your terms and conditions to include your late payment procedure.
This way, when an invoice exceeds terms, there are no surprises as customers know what they’re signing up to from the start.
To make sure that your business is doing all it can at each stage of the order to collections process to get paid take a look at our credit control tips section.