Small businesses are focused with their bottom line, and every financial activity reverberates throughout their entire business. Unfortunately, in some instances, things don't always run as routine as you would like. In fact, according to a recent white paper by Palo Alto Software, 47 percent of businesses cite cash flow management as a major concern.
And when it comes to customers and late payments, it can be like walking on a tightrope; it may be a delicate situation to conquer, and one wrong step might make the issue worse. After all, they are still your customers. However, lacking that source of valuable cash can create a major cash flow problem, which can have spiral effects to every part of your business.
To help navigate your way through dealing with late payments, here are five tips to implement:
1. Know Your Industry
Research on what is the industry standard for your business in terms of payment days, collections, and incentives can keep your customers paying on time. Understand what your current AR payment days are, and see how they compare to the industry standard. Examine and understand your late-paying customers. Are they all similar? What is it about them that is causing late payments? Maybe they hate paying by check? Maybe they need multiple reminders? Maybe they just need to know there is a penalty for paying late, yet would appreciate an incentive for paying early.
By understanding your industry, and then examining which of your customers are paying late, you can start to craft a better policy, and put some procedures in place to collect more regularly from the customers that you know may be more likely to pay late.
2. Communicate Your Policy Clearly
How many of us actually read the fine print on anything? While it doesn't have to be on a billboard, make the policy easily accessible to customers. Put it at a prominent place on you website and other materials, and have them agree and sign off on it, ensuring that they understand its terms.
Also, be as specific as possible about its language, especially with the penalties for late payments. Avoid vague wording such as two weeks and set a specific date (ex. the first of every month). Be fully transparent as much as possible.
Give your customers more than one option for payment, so that they can split payments up if they need to - for example, you could require 25 percent down, 25 percent halfway through the job, and 50 percent due on final delivery.
3. Don't Neglect Customer Service
We all go to the grocery store, eat out at restaurants, stay at hotels. Good customer service matters; bad customer service can affect you negatively for the rest of your day. Acknowledging people with 'please' and/or 'thank you' goes a long way.
Remember, your business is a reflection of you. Maintain a strong sense of identity, be cordial, and conduct your business with professionalism. Ask yourself key, reflective questions. How would you want your customers to view you and your business? Your reputation depends on it.
4. Embrace Mobile and Software Technology
Technology is a way of life now. Try not to box yourself or customers in. With the wealth of tools and resources available, be open and available to fully utilizing them. This includes online or mobile payments, sending payment reminders, and using software to help track delinquent accounts.
By accepting more than one form of payment or through different avenues, it gives your customers convenience and flexibility. This will help your customers stay up-to-date on their payments, while keeping yourself organized better.
5. Remember the "Golden Rule"
Let's say a customer has a standing delinquent account. Help resolve this delinquency in a way that works best for both you and the customer. Reach out to them, talk to them, and set up a flexible payment plan. It may be as easy as providing them with an alternate way to pay (credit card versus check). Treat your customers as you would want to be treated.
Unlike the terms of your policy, dealing with customers may not be so straight-forward; sometimes, there may not be a clear path to a solution. You can work with customers to get payment in creative ways, perhaps an installment plan, but be cautious to those people you lend a helping hand. Good customers make your day; reliable customers make a successful financial quarter for your business.
Maintaining customer relationships are the key to any successful business, but cash flow is what keeps your business alive and running. Late-paying customers can be a burden on you and your business, and can cost you in the long run. With these helpful tips, you can do your best to avoid these difficult situations, while maintaining adequate cash flow and preventing the situation from worsening. You and your business depend on it.