Being a small business owner is hard. There are a lot of bumps that become detrimental if not addressed right away, especially when it comes to payment. One of the most awkward situations then is when after sending many invoices you still don’t receive payment from a client.
For companies that do B2B, late payments can be common. Chasing debtors for what they owe dries up the cash flow. It not only reduces profitability but also affects negatively business growth.
If you’re having trouble getting paid on time, then here’s a guide to managing delayed payments.
Credit reports can be used as a tool to get information about a businesses’ credit history. It helps in determining the chances that a business will make payments on time. You can then prepare in advance for any defaults and late payments the business may incur. This tool is essential as it’ll help decide if a customer is worth dealing with and what the risk level is.
A well-managed invoicing system is essential for getting on-time payments. If your invoicing procedure is full of flaws, then you can’t blame the debtors for the delayed clearance. In case of any faults, consider sending the invoices as soon as possible, state the terms of the invoice clearly and offer multiple payment options for easy payments.
Inability to pay off debts is the primary reason behind the failure of a business. To deal with this issue, monitor the changes in payment patterns of your debtors. This can be done by focusing on the cash flow. It reveals the risk level and signals the chances of insolvency.
Unwillingness and inability to pay are not the only reasons for a delayed payment. Sometimes, the company may simply forget to pay. In that case, sending out regular reminders is a good practice to ensure consistent payments.
You have the right to take actions against the defaulter business and claim interest on overdue payments. Generally, businesses offer 30-60 days’ interest-free payment terms, but failing to make payments after that period is not acceptable. Contact your customer and enquire about the reason for the late payment. In the absence of a proper excuse, charge interest and seek compensation for debt recovery costs.
If a debtor develops a habit of paying late, then revising the payment terms is the best option. Include interest penalties on delayed payments, discounts on early payments and payment on delivery in your revised payment terms. These inclusions will solve the problem without halting the trade flow with late payers.
Overdue payments create a lot of problems for small-scale businesses. Recovering money from unpunctual payers requires time, energy and fund. Start chasing debtors for outstanding money due as quickly as possible and follow this guide for managing late payments.
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