Late payments are those amounts for which goods or services are delivered by the business to customers but the payment for the same is yet to be made. It is the due amount for which the decided payment period or date is crossed.
Late payments are common and can occur due to many reasons. Before knowing how to collect them and learning to avoid them by taking proactive measures, let us know their impacts on business.
How late payments affect business
Late payments bring many negative impacts to the business. The top three of them are:
- Limited ability to make payments to vendors
- Frozen or delayed hiring
- No funds for future business investment
The points above are big hurdles in business growth. Therefore, it is very important to know how to collect late payments as soon as possible if unfortunately, such a situation occurs.
Ways to collect late or overdue payments quickly
Know some ways which can help you to collect late payments quickly. This will help your business to reduce the negative effect that late payments can have. Read the points below:
1) Send a late payment reminder letter
This is the very first and most important step when the payment due date is crossed from your customer’s side. A mere late payment reminder can make your customer remember the forgotten payment. You can even attach a payment link in a late payment reminder letter so that your customer can pay immediately.
2) Have multiple payment options for your customers
If you are trying to chase your customer to pay the late payment, give him/her options. This will make it easier to pay overdue payments. Some of such options can be credit cards and debit cards direct payment, net banking, payment links, etc. It is a smart choice for you to offer various payment options to your customer. If you have a single or limited payment option, the customer might not have that very option to complete pending payments. This will further delay your payment completion.
3) Consider a partial payment option
Sometimes, there could be a genuine cash flow issue or lack of funds problems with your old and trustworthy customer. In such a case, it is obvious you would want to retain your relationship with that customer. Here, partial payments or paying through installments can be of great help. This way, the customer would not be burdened with paying the whole amount together and you will be able to receive your payment slowly but surely. Some apps in the market today like MyBusiness app provide partial payment options through payment links.
How to avoid late payments proactively
1) Prior credit check of clients
Ensure that the customer/client with whom you are entering into business would be able to pay you the estimated amount. Therefore, send the estimate beforehand and always do a credit check on the client’s history on budget and business. This will give you an idea of your customer’s/client’s business financial health before you partner with him/her.
2) Set up clear terms
Always be clear about the terms and conditions of payment due dates. If you have put any terms of late payment interest, inform it to the customer beforehand and put it clearly on your bond. Clarity is important for you to receive payments on time. Without clarity, a client might just hold on to payments to dispute the invoice.
3) Correct and quick billing
Send invoices on time as the quicker your customers will receive invoices, the sooner they will get an opportunity to pay. Use online invoice generator apps for hassle-free generation and sending of invoices.
Late payments can hamper business growth. Therefore, it is always important to take steps in advance and prevent them from happening in the first place. With the tips above, you can effectively manage late payment collection and take steps so that they do not occur in the future.