For small businesses, one late-paying customer could mean the difference between success and failure. How rampant is the problem of late-paying customers? Consider these numbers from a Fundbox survey of howunpaid invoices affect small business growth.
If small businesses were paid for all of their unpaid invoices, they couldhire 2.1 million employees.
If small businesses were paid for all of their unpaid invoices,business owners could pay themselves an incremental $31Kon average.
79 percent of small business owners cut their own paywhen customer payments are slow.
17 percent of small businesses cut spending on inventorywhen customer payments are slow.
Not only are late payments a big problem for small business, but the problem is getting worse.
According todata from Creditsafe, the average DBT (days beyond terms) payment period for B2B companies has increased in all 50 states over the past year.
To prevent and handle late payments, try these tips.
Create a contract or statement of work detailing payment terms. That includes when payment is due and how many ways you accept payment (check, PayPal, ACH, etc.).
If your client outsources their receivables to an online accounting solution business, make sure you have all that information before it’s time to invoice. Some online services have a lengthy registration and approval process, and starting immediately will reduce delays.
The company may require specific information on your invoices such as a PO# or line item descriptions. Find out this information ahead of time.
Send invoices as soon as a project is completed. Most customers and clients prefer to get invoices by email, which is faster and gives you a digital record of when the invoice is sent.
Use language such as “Payment due” instead of “Net 30” to be as clear as possible.
Indicate on the invoice at what point customers will be charged a late fee and the percentage or dollar amount of that fee.
Consider offering an incentive for early payments and/or cash on delivery.
Keep on top of late payers. Your accounting system will show you the average pay time for each customer, so you can see which customers continually pay late. Accounting software lets you easily generate an income statement, balance sheet and cash flow statement. Use these tools to stay on top of your financial picture, and pinpoint potential problems early.
If a payment is late, don’t wait to follow up. Send a quick email, or make a friendly call to find out why payment is delayed. Customers will pay the company demanding payment before they’ll pay companies that do nothing.
Find out why your customer can’t pay on time, and find a solution beneficial to both of you. If you need to work out a payment schedule, don’t drag it out too long. Keep records of all correspondence, invoices, contracts and attempts to obtain payment. Detailed documentation will help you in case you need to go to court.
Consider requiring partial payment upfront if you choose to work with a late paying customer again.
Most clients and customers will accept a C.O.D. payment relationship until a steady payment history is established. If you find a business is regularly late with payments, either stop providing services or sending products until paid in full, or stop doing business with them altogether.
A client hasn't paid an outstanding invoice, even after you've sent reminder after reminder. What can you do? Here are 8 options when clients refuse to pay you.
Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.
You could also say, "If nothing else, will you let me know if you're not going to be able make it? That way I won't keep holding the time." That might be all it takes. Naming the problem and making it clear that it is a problem might be enough to get this client to take your meeting times more seriously.
If you had a contract or an engagement letter with the non-paying client then send them a letter, via certified mail, demanding payment in full within 10 business days. If the client still refuses to pay then file suit against the client. You don't want problem clients, particularly ones who don't pay their bills.
Late payments from clients can often be attributed to cash flow issues, whether due to their clients paying late or to loan requirements mandating a certain amount in the account. However, this could also be because they overestimated their growth while hiring you, and it didn't pan out as they imagined.
Customers tend to forget, mistakes on invoices arise, technology issues arise, and economic uncertainties lead clients to request more time. If you're dealing with checks, there's another set of possible delays from when the check is sent to when it's processed.
For example, being 90 days late on payments hurts your score more than being 30 days late, according to myFICO. And being 150—or 180— days late, they point at which your creditors might charge off your debts, is worse than 90 days late.
Missed a Payment? Try Writing a Goodwill Letter to Remove It From Credit Reports. A goodwill letter explains why you had a late payment and asks the creditor to take it off your credit reports.
Writing an “Apologize For a Late Payment” letter is a professional and effective way to express regret for the delay in payment. This letter should include a sincere apology for the delay, a brief explanation of the reason for the delay, and a clear timeline for when the payment will be made.
Introduction: My name is Kimberely Baumbach CPA, I am a gorgeous, bright, charming, encouraging, zealous, lively, good person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
