Receiving late payments for overdue invoices stifles your cash flow. If you want to restore that flow, here are several tools you can use to collect on these invoices:
1. Change the customer perception of their payments
Many people perceive bills as an inconvenience because it means parting with their hard-earned money. Although they want the goods or services, it still hurts to part with their dollars.
A person doesn’t usually change their payment habits from one bill to the next. Someone who’s perpetually behind on their phone or electricity bills will probably be behind on invoices for their own business.
To encourage people to pay late invoices, you need to find a way to remind them of the value of the services they’ve received, without making the request to pay seem like a threat. Threatening is one way to never get paid.
When you can get a customer to think about the value of what they’ve received, you’ll have a better chance at getting paid. You can achieve this through the language you use to communicate with your customers.
Be intentional with your words
When you send a “late payment” notice, it’s tempting to mark it up with red ink, emphasize how overdue the invoice is, and stack up the penalties. However, that approach is not effective. Instead, change the words you use to request payment in full.
Use phrases like, “thank you for being a loyal customer,” “we’re happy you’re enjoying your services,” and “your prompt payment makes it possible for us to continue serving you.”
2. Seek outside help to get paid
If you’re having difficulty collecting on your outstanding receivables, consider getting help in the form of accounts receivable factoring. There are companies that will buy your outstanding invoices, and the customer will owe them. FactorFinder.com explains, “Factoring receivables is used to smooth out the gaps in your cash flow caused by slow-payers. It’s a debt-free way to get paid sooner by unlocking cash tied up in unpaid invoices. Since it’s not a loan, there is nothing to repay.”
Be sure to seek this kind of help as soon as possible; the older an invoice gets, the less collectible it becomes.
3. Don’t accept reasons or excuses, yet be flexible
If you’re going to cut someone a break, do it without accepting their excuse.
While there are legitimate situations in which people don’t have available funds, some people put off their payments out of habit. The moment you accept an excuse for a late payment from someone with that habit, you’re creating a future of late payments.
Quickly suggest a new due date
Rather than entertain excuses, suggest a new due date that isn’t more than a week away. Let them know if they pay by the new date, their payment won’t be considered late.
Be flexible with the date; if a customer needs a couple extra days beyond the date you proposed so they can get paid, give them that grace period. Give them at least one chance to follow through.
If any of these top excuses for late payments sound familiar, it’s time to tighten the reins on your collections efforts.
4. Avoid getting involved in the customer’s story
Customers have all kinds of reasons they can’t make their payments, and unfortunately, entertaining the legitimate reasons can put you in a position where that customer will expect a break.
For example, if a customer tells you they can’t pay their invoice because they had to drain their savings account to pay for an emergency surgery, that’s a legitimate reason. However, the more you allow the customer to tell you their story of why they can’t pay, the more they’ll expect you to cut them a break – and get mad when you don’t.