ONE of the biggest frustrations small and medium business owners face is getting customers to pay them on time.
According to a survey by the Small Business Institute (SBI), small companies write off as many as 40% of late payments as bad debt and receive payments, on average, 101 days after the 30-day target.
Similarly, Sage’s own research reports that more than 1 in 10 is paid late. The research also found that across the world, the most common excuse given for late payments is… no reason at all.
So, what to do about it?
- It pays to be prepared
One of the best ways to avoid having a conversation with a client about a late payment is to ensure that they’re primed to settle each invoice on time. There are a few steps you can take to encourage your clients to pay your invoice promptly:
- Set clear payment terms and conditions from the beginning
- Offer incentives for prompt payment
- Vet clients before offering a line of credit
- Provide easy payment options:
- Analyse your customer base
- Remember to invoice promptly every month:
- Understand your customers’ payment cycles:
If you’re dealing with a large corporation or the government, you will probably need to fit in with its procurement and payment process. Make sure that you understand how the process works and how long it takes – from raising a purchase order (PO) to submitting an invoice and getting paid – so that you can plan around it. The customer will most likely set payment terms of 30 or 60 days, but if you know, you can take steps to manage your cash flow.
- Be nice, stay calm but don’t be a walkover
Here’s a scenario you may relate to: A customer who usually pays you by the last working day of the month is now three days late with payment. Because they have been reliable payers and spend a lot of money with you, you don’t want to alienate them when you chase them up about the outstanding payment. What should you do?
First of all, do not let it slide. You should follow up as soon as a client misses a payment deadline to show that you are serious about getting paid.
The first reminder should be a friendly one, which you can send by email or text message. For example, you could use a template like: “Hi there, we were expected payment for invoice 35 for R7,500 by 30 May 2019. Please let me know if you have any questions about the invoice and when you expect to settle it?”
If you get no response, you could follow up a few days later with a slightly firmer message, reminding the customer of your payment terms and setting a deadline for payment.
For example: “Hi there, we’re still awaiting payment for invoice 35 – just a reminder that our payment terms are strictly 30 days. Please settle this invoice by June 15 2019.” Depending on your relationship with a payer, a phone call might be more effective.
In practice, hardball tactics like trying to claim interest and debt recovery costs from a late seldom yield positive results for small businesses in South Africa dealing with larger companies. A polite but firm approach is more effective.
- Call the person in charge of making the payment
When you’re dealing with a larger organisation, it will have a separate accounts department handling supplier and service provider payments. You can often avoid the awkward conversation with your client contact by going to the person who needs to authorise and make the payment. This person will be used to getting phone calls from vendors looking for their money.
