If you own a company, you rely on your customers' payments to keep the wheels of your business turning. This is especially true for fields with high overhead costs like construction, which requires adequate funds for building materials, permits, and labor for every project. Late payments can be extremely frustrating and potentially damage your business. This guide explains how to deal with delinquent payments without harming business relationships.
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Set up a streamlined accounting system to stay organized
Organizing your finances is the first step towards identifying and tracking late payments. Make sure you have a business bank account set up, where you can log all your business-related income and expenses, keeping them distinct from your personal finances. Then, invest in accounting software to help track invoices. Many tools offer integrations that allow you to issue invoices, track expenses, and even easily complete bookkeeping tasks.
Find professionals to help manage bookkeeping and accounting
Setting up a clear bookkeeping system is only the first part of the battle. You need someone to manage it. Hiring an external third party can also help you maintain a good relationship with your client. These experts offer accounting and bookkeeping services, and can help connect you with any necessary legal assistance.
Make your payment terms clear to clients upfront
Before you sign on the dotted line with any customer, make sure they are aware of your payment terms and conditions. These should be written out clearly and in line with industry standards. Say you work in construction, for example. It's normal for long-term projects to have multiple payment milestones throughout the project. This helps to minimize the risk for construction companies.
Set out a clear action plan for handling late payments and stick to it
When it comes to the uncomfortable task of chasing late invoices, create an action plan in advance. You'll then know exactly what to do when trouble arises. A first warning could come in the form of an email, with the original invoice reattached. This can then be followed up with a phone call. If they still don't pay, you may have to get more aggressive. In this case, having a third party, like your accountant, handle the follow-up can be preferable.
Look for ways to encourage prompt payments while fostering customer loyalty
By getting proactive about avoiding late payments, you can actually improve customer relations. Due notes that the right incentives can encourage people to pay not only on time—but early! Examples include providing a discount for those who pay early. Paying on time can also be used as a means of avoiding late fees. In a field like construction, prompt payments can help guarantee that a project progresses in a timely fashion.
Instead of sending out paper invoices, bill your customers through email. You can create branded invoices by using a free invoice template. Include your billing terms and information and then edit the template to add your logo, personalized fonts, and images.
Know when it's time to cut ties with a client
Sometimes, a customer who creates a lot of stress—for example, by consistently paying late—simply isn't worth the hassle. Learn how to recognize signs that it's time to cut ties with a client. The Muse offers some guidelines, such as if you find yourself being overly accommodating towards them. In the big picture, getting rid of this kind of client will be for the best for your business.
Dealing with late payments is uncomfortable but also an inevitable part of business life. Learning how to handle this scenario now can save you headaches later.