Late payments. What can you do to prevent them? For anyone involved in credit management, it probably doesn’t come as a surprise that late payments are a problem for businesses of all shapes and sizes. According to research from YouGov, late payments left UK SMEs £266 billion out of pocket in 2016. Combined with late payments for larger organisations, it’s clear how impactful late payments are on individual businesses as well as the economy. It seems that the problem will only deepen. YouGov also reported that one in ten business owners believed late payments had become worse since the EU referendum. Uncertainty makes people less willing to part with their cash. The overall political climate around the world and unfavourable economic conditions are probably going to remain for the foreseeable future. That doesn’t mean credit managers should worry. Rather, find better and more inventive ways to convince customers to pay. The good news is that doesn’t have to be as difficult as it sounds, and in some cases, small changes can go a long way.
Here are five things you can start doing right now, which should help you get payments in more quickly:
- Set out your payment terms in writing
Make sure your payment terms are in writing and accessible to your entire team, as well as your clients. It might be assumed that everyone knows payment is expected in 15 days. However, make a point of getting it in print. This will make the rule more concrete and remove any doubt about what’s expected. It will also help ensure your customers are getting a consistent message.
- Offer an early payment discount
Research has shown that negative reinforcement just isn’t effective. This is true when dealing with toddlers, untrained puppies or customers who don’t pay on time. So, try offering incentives for good behaviour. Instead of adding late payment charges after the due date, give clients a discount if they pay on time.
- Promptly send out invoices
Batch processing invoices once a month might seem more convenient. However, sending them out as soon as you’ve delivered your goods or service could yield better results. Customers are more alert and less time passes between the different stages. Plus, it means the business can benefit from a more constant flow of money, rather than it coming in waves.
- Take quick action on unpaid invoices
If a payment is late, get in touch with the client right away. If you decide to wait a few days to see if the payment comes in, it demonstrates a lack of urgency in receiving the money.
- Use the right tools
The right software can help to streamline all parts of the Order to Cash process, while also automating processes and optimizing your data. If you’re using an out-of-date system or a time-consuming spreadsheet, consider the other options that are available. Take steps to get a better system implemented as soon as possible. Here at Onguard, we provide specialist Order to Cash software that has been designed to save credit professionals time and help them build better client relationships. Our credit management tools integrate with existing ERM systems and provide a quick return on investment. Most importantly, it helps you prevent late payments and decrease DSO. Our default software is highly configurable, keeping our solutions flexible even in complex situations.