Angry Man on Phone

How to Chase Late-Paying Customers Without Ruining Your Relationship with Them

Does your SME regularly deal with late-paying customers? You’re not alone. According to Xero’s 2019 Paying the Price report, over 53% of all invoices owed to small to medium businesses are paid late, with big business the most significant offender. During the current uncertain business environment, the time-to-payment has only ballooned further as almost all companies look to conserve working capital.

Keeping your business’ cash flow healthy is essential, so ensuring your customers pay on time is a crucial task for every small to medium business owner. At some point, your customers will miss their due date, causing their invoice to become overdue. How do you chase them to pay while maintaining a positive relationship and retaining them as a customer? This article will examine four critical strategies used by many SMEs to chase their invoices effectively as well as a lesser-known, but highly effective, strategy to bridge the cash flow gap caused by late-paying customers.

Clearly Set Your Payment Terms and Expectations

Set your business’ payment cycle up for success. A common mistake many business owners make is assuming their customers are on the same page as they are. If you have specific terms of trade or payment expectations, then you need to communicate them before beginning any work. Make sure your payment terms are reasonable and fair – consider your industry’s accepted terms as a standard to work from. 

You’ll be far less likely to run into trouble later if your payment terms are communicated clearly and agreed to in writing upfront. Not only does this set your initial expectations on the table with your customer, but it absolves any possibility of ignorance as an excuse for late payment. Furthermore, you’ll feel far less guilty chasing an amount given you’ve done everything on your end to minimise any misunderstanding.

Check Everything is in Order then Follow-Up Politely

When an invoice is approaching its due date, or it’s already overdue, your first step should be to check everything is in order. Did you follow your procedures? Make sure you have sent the correct, complete invoice to the correct person and email address on the right date. Although these checks may seem simple, they are often the cause of a delayed invoice. To maintain your relationships, improve and rectify what you can control before laying the blame on your customers.

“Your customer will likely have an explanation and work with you to formulate a solution”

If everything looks correct and your payment terms are clear, it’s time to follow up payment directly with your debtor with an email. Your communications should always be framed politely. More often than not, your customer will have a plausible explanation and will work with you to formulate a solution. However, do not beat around the bush and remain firm in your desired outcome. You’re in the right and deserve to be paid for your work within the agreed time frame, and you’re not being rude by asking!

Automate Reminders and Make Payment Easy 

Set up automated due-date reminders via your accounting software. Many businesses have multiple competing concerns, so a simple reminder a few days before, on and after the invoice’s due date can go a long way to securing their payment. Since automated reminders are issued by software neither party loses face, it’s a predetermined reminder sent by a computer. It also makes sure reminders are consistent and on time, taking time off your hands. 

Make it straightforward for your customers. How can they pay you? Offer multiple fee-free payment options where possible. Consider implementing early payment discounts or late-payment interest penalties with your debtor if you find that motivates better-paying behaviour.

Pick Up the Phone and Have a Chat

The best way to avoid confusion, communicate your position and maintain a positive relationship with your customer is to get on the phone and have a conversation. Follow these three steps to maximise your chances of a successful call:

1. Pick Your Timing. When do your customers usually pay? Do they have a regular payment run? Is it 4:30 pm on a Friday? Pick up the phone at a suitable time where possible.

2. Write a Rough Script. Make sure you have all relevant information on hand, such as your invoice number, amount, date of issue and due date. Prepare a written script that you’re comfortable with. This preparation will improve your confidence on the phone and ensure you don’t miss the key requests you’d like to make.

3. Maintain the Right Attitude. Try to diplomatically understand your customer’s situation, why they haven’t paid on time and the steps required to reach a peaceful resolution. Hope for the best, don’t jump to negative conclusions.

As general takeaways: communicate your terms, maintain a resolution process, remain polite, seek understanding and consider further escalation as a last resort. Setting up your operations to avoid late payments in the first place will always be the best solution. 

Regardless of having these controls in place and implementing these strategies with your debtors, every business will continue to face the reality of late-paying customers at some time or another. Late payments will have a detrimental effect on any business’s working capital position, so it’s prudent to consider options to minimise the impacts. Every SME should consider utilising invoice finance to access cash tied up in unpaid invoices in as little as 24 hours from issue. 

Don’t let late-paying customers hold you back, unlock tomorrow’s cash flow today with OptiPay.

Share This Story

On the lookout to improve your business finances?

Stay ahead, sign up to the Optipay Finance Newsletter.

OptiPay Cash Flow Finder