For many small businesses, late payments (or not receiving payment at all) from customers is their number one concern when performing daily operations. During a study we performed for our Small Business Pulse Survey, 41% of small businesses considered late payments to be the biggest pain point when collecting payments. Which is fair to say considering that half of the businesses we surveyed said they experience late payments every month. If late payments are a struggle in your small business, follow these 5 steps to ease your pain (and put more cash in your pocket!).
1. Start Tracking
The first step (although it may seem obvious) is the most important; Start tracking late payments. Many small businesses don’t track their payments with the accuracy needed and more often than not their late payments will go unnoticed. Not tracking payments can lead to poor cash flow management, which causes more and more business to fail every year. Whether it’s using online payments, ACH billing software, or tracking by hand, locating late payment offenders quickly can prevent them from continuing in the future.
2. Simplify Terms
It’s easy to blame your merchants, vendors or customers for any late payments, however, sometimes the cause can simply be misunderstood payment terms. Many of your customers are juggling different terms and payment plans at once, and confusing or unclear terms on your part can lead them to push your payment aside. The solution? Simplify and effectively communicate when and how you expect to get paid with your customers upfront. Let them know all the details ahead of time and to contact you if any confusion arises. Establishing this communication at the beginning can lead to a better payment relationship for the future.
3. Speak Up
It’s fair to say that late payments are a ‘touchy’ subject for any business (especially in rough economic times). It’s difficult to contact a client and let them know that a payment is late, but allowing it to go unnoticed can lead to bigger troubles. Who knows, it may be that the customer ‘thought’ they successfully paid but didn’t finish the process. Either way, contacting your customers should remain professional and respectful at all times.
4. Plan For It
One reason late payments are such a pain point is because they hurt cash flow and lead to unexpected troubles. Many small businesses (especially new businesses or start-ups) often don’t plan for late payments at all. Unexpected late payments hurt much more than ‘expected’ or ‘planned’ late payments. To ease the pain, allocate a certain budget each month that you expect to lose to late payments. This way you’ll have a cushion if (or when) late payments occur.
5. Turn to Technology
There are plenty of tools and software that are easy and affordable for any small business. Tracking payments and cash flow is no easy task, but with the help of technology it can be easy and (dare we say) enjoyable. These tools can save your business time and money, and encourage effective cash flow and customer management going forward.
6. Make it Easy for Customers to Pay
The key to getting paid is often times reducing the friction of accepting payment from your customers. The easier a customer can access, analyze and pay their invoice, the less likely they will skip the process altogether. Favorites of many small businesses include accepting ACH processing for online payments, credit card processing, and eCheck processing. Each has their own pros and cons and will often be different for each business.