According to Bill.com, this is the advice they give on how to reduce late payments from customers.
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When customers pay late, your business may experience cash flow problems. Keeping your business healthy and out of the red requires a solid strategy—one that consistently gets you paid on time with minimal effort.
The first step is understanding who your clients are. With this knowledge, you can customize your payment collection strategy to better suit their needs. Flexible payment options, early payment incentives, and convenient payment methods go a long way toward getting paid on time.
The next step is automating your accounts receivable (AR) process. That way, you can focus on other areas of your business without the added stress of identifying unpaid invoices and chasing down late payments.
Here’s a quick guide to keeping your business healthy by reducing late payments.
Your business needs a steady stream of working capital to thrive, which is nearly impossible when your customers don't pay you on time.
When customers make late payments, you can't pay for the resources your business needs. Debts such as vendor bills, utility payments, and payroll pile up while you wait for your customers’ payments.
When you experience cash flow problems due to late payments from your customers, it can impact many aspects of your business, including:
The overall impact of insolvency could seriously hurt your company’s reputation. So even when you do recover, your company’s damaged reputation and business relationships could make it challenging to remain in business.
Taking control of your accounts receivable goes a long way toward maintaining a healthy and sustainable business. While you may not entirely avoid late payments, here are a few ways you can stay on top of things to minimize risk to your business.
Understanding your customers can help you create a payment policy that sets them up for success. For instance, if you deal with smaller clients, their cash flow situation may require longer payment terms.
Instead of requiring payment after 30 days, consider giving small businesses a longer grace period of 45 days to bring their account current. You might also need to make your late payment fees more manageable for them, or consider offering leniency on the first missed payment.
If you deal with larger companies, there are other things to consider. For one, many companies have approval processes before making an invoice payment. You need to account for this in your follow-up strategy.
Be sure you understand your contractual payment terms clearly. If you sell on credit, make sure you know how much time your customers have to pay.
Also, make your credit policy clear and concise. It should spell out what forms of payment you accept. It should also include information about late payments and penalties for non-payment.
If you want to get paid on time, it’s important to send your invoices on time. The sooner you send an invoice after service, the more likely it is that your clients will pay you promptly.
Each invoice should include the payment amount, payment due date, and minimum payment due, and, of course, it should make it clear what products or services are included. This can speed up the approval process considerably.
When you make the payment process easy, your customers are more likely to pay before the due date and avoid late payments.
As a result, you’ll spend less time dealing with delayed payments, which leaves you more time to focus on more important tasks for your business.
One way to encourage your customers to pay their bills early is by offering an incentive. For example, you could offer a discount for those who pay within a specific timeframe or give them credit for settling the balance in full.
One common discount example is 2/10 net 30, meaning a discount of 2% for payment within the first 10 days of a 30-day payment window.
Exclusive deals or rewards for customers who pay their balances in full and ahead of schedule can put your company at the front of your customers’ payment list.
If you want to take control of your collection efforts, start by determining the current status of all your accounts receivable and create an accounts receivable (AR) aging report. The aging metric helps you track and measure the payment status of all your customers. Categorize outstanding invoices by the number of days since the invoice issue date:
Review and update this report regularly to see which missed payments might be signaling major problems.
Rather than waiting until a customer makes a late payment, create a plan to follow up with them regularly. This friendly reminder keeps the customer aware they have an outstanding balance. Your follow-up plan should outline when reminders are sent.
You should also have a payment reminder template. That way, you aren’t typing the same letter repeatedly.
Traditional methods, such as using Word or Excel to track and follow up on late payments, are time-consuming. These manual AR processes are prone to error, and they’re retro-active rather than proactive.
AR automation software can help you save time and money while improving your client relationships. Track your invoices in one convenient place, set up automated reminders and put your regular receivables on autopilot with auto-charge and auto-pay.
Accounts receivable is a critical part of your company’s financial health, especially in maintaining a healthy cash flow. To see how BILL’s AR automation can help you get paid 2 times faster, start a risk-free trial and send your first invoice in minutes.