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How to Prevent Late Payments: Effective Techniques for Businesses?

Posted on 30/07/2024

You’ve delivered your services or product(s) right on time, and your client was exhilarated with it, but there’s a twist. The invoice you’ve sent is several days late, and this isn’t the first time that this has happened. You might not have considered hiring outsourced bookkeepers for accounting firms to get your clients to pay on time. Irrespective of the business you are in, you will experience late-paying clients. Almost 80% of businesses receive their payments well past the due dates. Approximately 75% of companies have had clients who have not paid their invoices for at least 40 days.

Looking at the circumstances, customers get the benefit of the doubt. Most clients are friendly and are looking forward to paying you eventually. Their late payments hurt your income and ruffle up your budget. That’s not good for your business’s financial health. It’s wise to nip the problem in the bud and take action to preclude new clients from becoming late payers.

Where should you start? To help remind your customers to pay on time, we suggest using one of the following tactics:

Maintain superb client relationships.

Your client will want to pay you on time when you make them feel special, not a revenue machine. Always maintain a friendly relationship with your customers and let them know they’re special. There are many ways to make them feel like they’re not only a client but a valued member of your team. Help solve a personal problem, feature them in your blogs or provide a one-time service bonus.

People always want to feel special, and our brains fire up when we’re mentioned by our names. Clients are more than willing to go out of their way if you do the same for the first time, and you’ve just learned the principle of reciprocity.

As a business, you need to always remember that your clients may have hundreds or even thousands of employees. Make a list of key contacts and send them a personalized gift or a thank-you note. A simple handwritten or printed note telling them they’re important will go a long way when the time arrives for them to pay your invoices.

Having Precise Payment Terms

Sometimes, clients assume wrongly about your payment terms. They assume you function on a “Net 21,” “Net 30,” or even on a “Net 21” basis or on specific days, like the 1st and 15th of a month. All your terms and conditions should be worded out clearly. There should not be any grey areas.

Add relevant sections in your contracts that explain the due dates, payment modes, and other required terms in detail. While working on this, check if your customers require specifically formatted invoices or how you should submit your invoices to comply with their system.

Learn how having outsourced accounting and bookkeeping services helps you reduce time spent submitting your invoices and doing follow-ups with your clients.

Automating Your Invoicing Process

There are times when you are busy with your project and you simply forget to send the invoices to your clients. Sending invoices through mail takes time, risks getting lost, and adds to billing expenses. Automating the process using invoicing software and accounting software gives the clients the invoice quickly. It also saves on mail expenses and paper and keeps your invoice at the top of the client’s mind.

You should schedule email reminders for payments so you are not chasing late-paying clients. Outsourced accounting bookkeeping services are an invaluable option for staying on top of your accounts payable and receivable. Automated solutions have payment reminders and can be linked to online payment clearance providers. It is advisable to invest in a system that automatically sends invoices once you complete your projects. Read more: How Does Automated Invoice Processing Work?

Implement a recurring payment system

If you are working long-term with your clients, you should seriously consider a recurring payment system. This allows you and the client to focus more on the project and not be bothered by billing schedules and invoice due dates. It’s easy to get this up and going when you provide the same services every month.

With varying payment dues and dates, you are more likely to run into difficulties. Your client shouldn’t mind payments going out automatically for expenses without reviewing them. If they want to know, sit down and set a basic amount for all recurring invoices. If you have additional costs, show them to the clients before you bill them.

Making sure your automated invoicing solution sends invoices and receives money from clients is always a plus. You should make sure that this automated solution allows for recurring payments, allowing you and your client to focus on work. You will save time in preparing and sending invoices, and your client will save time in paying them.

Client Rewards and Recognition

How many times have you sent a “Thank You” note or a gift to your client—not to pay invoices, but to let them know that they are appreciated? A few times over the years, never? Doing this is not bribing them to pay early; you are just making them feel appreciated. Writing a handwritten “Thank You,” “Thank You for Your Business,” or even “You’re a Great Client” will go a long way beyond clearing your pending invoices or getting them paid quickly.

You are giving your clients something to pay attention to and providing a discount for prompt or early payments. This small incentive encourages your clients to clear their dues, but penalizing them for late payments is also warranted. You have to put a percentage rate on missing deadlines, but you must emphasize prompt payments. You can offer a discount of 2% or even 5% for early payments.

Direct Invoice Payment Links

Clients might be willing to pay you immediately, but they have to open another program, log in, and then pay you. They might be called away from their system, and the session would time out before they got back. The clients don’t like repeating these steps again and again. They’ll leave it for later and eventually forget about it, or it will be delayed.

Investing in an invoicing system that supports integrated payments, like payment processor buttons, reduced the time for payment processing. Your customers are a click away from paying you for your job. This reduces any distractions that might stop them from completing the payment task in front of them. The easier the payment process, the quicker you get paid.

In an ideal world, invoices are paid as soon as they are presented. In the real world, you need a helping hand to keep your cash flow flowing. Using outsourced accounting bookkeeping services to process invoices, present them to clients, follow up, and receive payments will reduce your financial stress.

Ask for an upfront payment and then smaller payments

An excellent way to lower risk and make clients pay on time is by splitting the payments into smaller portions. You should do this for all clients. If you have clients who are already paying you, then implement this on their next project. It should be your golden standard for invoicing. You should split payments into parts like 30/30/20/20, 25/25/25/25, 20/20/30/30, 35/25/20/20, or any combination that you are comfortable with.

Are you ready to take paying bills off your plate?

An agreed-upon pre-payment amount before starting work on the project, and the next amount after finishing the first draft. This ensures that you have received an amount before you reach feedback and changes to the project, or the halfway point. Now, after you have successfully implemented all the feedback, changes, and critiques and the client is satisfied, ask for the pending amount.

It is better to ask for an upfront deposit when working on large projects or huge orders from the client. You should offer moderate payment options instead of one big lump sum. This ensures that you have cash flowing until the completion of the project, and clients will easily be able to make those payments.

Nevertheless, when working on large projects, it is best to ask for a deposit to cover expenses.

Bonus tips to get paid quickly

Delivering services on time

It is not enough to blame your customers for late payments when you have not delivered your services on time. You should inspect and see if you fulfilled your customer’s order on time. If you’re a business and you complete the project late, you can’t send an invoice. You have to account for that when you prepare your invoice.

Make sure you have enough manpower to be able to complete the project on time. Your customers will be happy and pay you quicker when you send your invoices to them for clearing. The quicker you complete your projects, the quicker you get paid. There is no point in being frustrated when you deliver late on your projects, but expect the client to pay your invoices on time.

Quick Invoicing

Send the invoice to your customer as soon as the work has been completed. This results in the work and payment being linked together. You will find that by linking these two together, you will receive your payments quickly.

When your project work has been completed, there is no reason to delay the invoicing part. Using outsourced accounting bookkeeping services helps you reduce the delay in billing your clients and provide them with invoices at the earliest.

Use outsourced accounting and bookkeeping services

There is no denying the fact that there is always a need for outsourcing services in every field. With a dedicated Cloud Accounting Bookkeeping Services team, you can concentrate on providing your client with the best service possible. The team would be an extension of your business and would ensure prompt billing and follow-up to clear pending dues and payments.

Relying on the Hire Outsourced Bookkeepers team also ensures that you are not wavering from your task at hand and are fully immersed in the project. All billing and invoicing-related tasks would be handled by the outsourced team, and you would receive payments on time. You have to update the team on the client contracts, billing schedules, reminders to be set, and follow-up criteria once, and it would be done as a routine job.

It would be wise to invest in a Hire Outsourced Bookkeepers team to reduce costs on mailing, printing, paper, and manpower hours invested to bill and invoice the client. All processes relative to financial services would be handled in the background without you being worried about the cash flow.

Ensure you have a collection policy

In most cases, you get paid either on time or late. There are cases when you are paid very late but are paid nonetheless. There are situations where, even after frequent late fees and reminders, your clients don’t honour their invoices.

In these types of cases, you can ask your attorney to send a letter or make use of debt collection agencies. Be careful, though; you are not trying to damage your relationship with the client. It may be that the client just forgot or the intern or secretary was inattentive in processing your invoice.

Conclusion

For these tips to work, there needs to be open communication between you and your client. While you can’t guarantee that these will work, you should prevent late payments. These tips will work with most clients and give you peace of mind.

Irrespective of how you minimize the problem, you should make sure your clients know your terms and conditions, billing and invoicing details, and other agreements. Conveying clearly with no misinterpretations gives you the advantage when you follow up with clients for late payments and late fees.

Whatever steps you take, always have a clear-cut collection policy. This helps you resolve unfavourable situations, if they occur at all. Many customers are cooperative and pay their bills on time or late.

Never, ever undervalue the ability to preserve a harmonious and professional relationship with your customers. Regardless of the frustration, always keep your cool and be respectful when reviewing and reminding about invoices that have been pending for a long time.

Our Bookkeeping Experts are here to help.

Topics: Cash Flow Management

Pramod

Pramod

Manager

About the Author:

Pramod has over 11 years of experience relating to finance and accounts in diversified industries. He is an expert in resource and process optimization resulting in greater operational efficiencies.

Author can be reached at [email protected]

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