Late payments are a constant worry for a lot of businesses, particularly smaller ones.
By Colin Timmis, head of accounting SA at Xero
Deadlines are often legal obligations and yet late payments persist. Sometimes they’re late because of other payments being delayed: one customer forgets to fulfill their obligation, so their suppliers can’t pay their suppliers (who, inevitably, can’t pay theirs). Late payments shouldn’t happen and there’s no excuse for them.
Research by Xero found that, in 2017, South African SMEs lost 1,3 days a month due to chasing late payments, and that 48% of entrepreneurs are regularly concerned about overdue invoices (and their general cash flow).
If you equate time to cost of wages, chasing payments is an expensive exercise. So how can you break the cycle and ensure that your clients pay on time, every time?
Build a good relationship
The likelihood of a client paying on time is much greater if you get on well with them. By getting to know them and their business processes, you can determine when they are likely to have significant outgoings, which will help to avoid competing with other suppliers.
Without sounding too contrived, try and also find out their year-end, their budgets, and cash flow positive and negative months, so that you can invoice at the best time for them.
It’s important to make your payment terms as clear as possible when you first start working with a new client.
By just making sure that they’ve got all of your correct details – including address, contact numbers, backup bank details, and any other information they’ll need to ensure they can pay you, you’ll avoid any delays further down the line. Insist on getting a main point of contact, and a secondary contact in case they’re unavailable.
You shouldn’t have to wait for payment just because someone is on holiday.
Automate the process
Automated systems make it much easier to chase payments in many different ways. With cloud-based accounting software, you can set it to automatically email the moment a payment is due.
Reminders can also be issued at intervals of your choosing. This relieves the burden of talking to late-paying customers and asking for money that’s owed.
Companies often look to charge for late payments, but working this theory in reverse can be just as efficient and helps to build a better relationship with your client. Where possible, give discounts for paying on time and shorten their terms if they pay late persistently.
This also includes working on your processes to ensure a smooth journey from their bank account to yours – ask them if there are any pain points in the process and work on them to make it easier in time for the next payment.
The inconvenient truth is that late payments can happen no matter how scrupulously you prepare – and when they do, it can be difficult to claim what’s yours. The process is awkward at best, and the temptation to give up can be overwhelming. But it doesn’t have to be this way.
By employing the right technology, introducing the right measures, and taking the right steps early on in the process, you’ll get what you’re owed – when you’re owed it.