Late payment of invoices can have a serious impact on a company’s finance, and you may even experience difficulty making timely payments to your own suppliers as a result. Monitoring cash flow and the payment of invoices is a crucial task for a business owner or manager, who will often prefer outsourcing accounts receivable where possible.
How to prevent late payment of invoices
The best way to deal with late payment is to prevent it where possible. Be clear about the date payment is due so that customers can’t be mistaken. Make payment terms clear and outline the consequences for late payment, which may include interest charges or refusal of further credit. If a customer prefers to pay on a specific date in the month or to pay using a specific method, try to accommodate where possible, especially if this will encourage prompt payment.
Chasing for payment
Rather than wait until the payment is overdue, send out a reminder on the due date for payment. This demonstrates that you expect payment to be made in a timely manner and are prepared to deal firmly with late payments. Once the due date has passed, contact the customer and ask why payment hasn’t been made, remembering that it’s possible a clerical error or temporary problem has occurred. Set up a team to deal with late payment of invoices, using procedures and making the process clear to everyone from the start.
Payment arrangements
Customers may contact you to say that they have a temporary problem with their cash flow, or that they need to extend their payment terms. Finance problems can occur at any time to any company, so it may be seen as a goodwill gesture to agree an extended payment period. However, if the payment deadline is missed again, you need to formalize collection procedures. You may also have to refuse further credit. It is often preferable to set up revised payment terms and receive the invoice amount late, rather than not receive payment at all.
Chasing bad debts
It may be necessary to employ a debt collection agency to deal with bad debts. There are other alternatives like using invoice finance, which may be suitable. Rather than risk nonpayment, start collection procedures as soon as possible to collect outstanding monies.
Collecting late payments can be awkward for everyone involved, especially if you are dealing with a customer who has traded with you for a long period. To discuss how to deal with late payments and how to prevent them, give us a call for an informal chat.