How to Get Clients to Pay Overdue Invoices
- May 28, 2020
- Running Your Business
- 11 min read
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As a small business, you may find yourself in a position where you’re actually providing finance to bigger, wealthier firms through their unpaid accounts. For a small business, an excessively high debtors’ value has a serious impact on cash flow. There have even been businesses that fail because their clients aren’t paying in time.
Whether it’s a supplier, vendor, client or someone else, when your small business is treated this way it means your customers aren’t paying invoices — instead they are using you like a bank. This can be a very tough position for a small business owner to be in since you need these payments to run your business, but you need the goodwill of your clients as well. Read on to find out how to get clients to pay overdue invoices so you can increase profits.
How to Follow Up On Payments Effectively
Just sending out statements and reminders isn’t going to get the toughest folks to pay up. No matter how little you like the idea, those collection calls are vital. No matter how frustrated and even angry you may be feeling about that overdue payment, you need to keep the client feeling positive about you and your business. No matter how great the temptation to call up late in the night and demand payment, you need to keep things calm and professional.
Here are some basics when dealing with any client who is late on repayment and must be called:
- Don’t call too often. When you call, try to get a time-bound commitment and only follow up if your client doesn’t live up to it.
- Call at a reasonable time of day. If you can’t get your decision-maker on the line, find out when you are most likely to reach them.
- Don’t let debtors make you lose your temper. If diplomacy isn’t your strong suit, get someone else to make those calls. You don’t get paid by antagonizing people — they’re more likely to make you wait even longer.
12 Tips to Help You Get Your Invoice Payment
One of the first and best steps you take, ideally before transacting business with clients, is to set up a payment policy. You should establish a payment policy for every one of your clients and customers. Your policies should come with terms and conditions covering the delivery of goods, plus the due date and other payment terms. Once you have this laid out, you can include it on your invoices to clients and customers.
Another fundamental point you should understand is the credit history of your customers. If you have a client who has good credit and a history of repayment, then it’s less important to follow-up constantly with them and instead be more patient and understanding. If you have clients with less-than-stellar credit and repayment history, then focus your efforts on following up on them more.
Here are some good tips to help you when it comes to following up with clients and collecting payments:
1. Verify Delivery and Documentation Are Correct
Your sales team should fulfill this role. It’s their job to ensure that the client is satisfied and that the invoice is correct.
2. Have the Facts When You Call
Before you call your client, ensure that you have all the documentation in front of you. That way, you’re ready to respond to any questions regarding the overdue invoice or invoices.
3. Talk to the Right Person
Who authorizes payments in your client’s organization? If the payment is only a bit late, the creditor’s clerk or bookkeeper may be able to help you. For very late payments, you may need to speak to the owner or financial manager in person.
4. Have a Pen and Paper Handy
Record what your client is saying about the overdue account. This will help you to schedule further followups if needed and will ensure that you won’t start at square one every time you call them.
5. Remember Your Company Could Be at Fault
If your invoice is wrong and the client has been talking to your sales personnel about it, he or she isn’t going to be very happy with your service when you start demanding payment. It’s also possible that payment has been made and that there has been some error in recording it. If payment was recent, it may not be showing in your bank yet. At the same time, you don’t want to sound too hesitant. Tell your client that you see the payment is late and are wondering if there is some problem. Get them talking.
6. Be Courteous Yet Firm
Sounding cheerful and friendly can get your client on your side rather than feeling the need to respond defensively. No one likes feeling like they’re under attack. Your debtor needs to feel that you want to understand their point of view, but don’t overdo it and lose sight of the aim of your call. Ultimately, what you want is a commitment to pay.
7. Listen for Excuses and Try to Help
Let’s say that your client claims the paperwork has gone adrift. This may or may not be true, but you will react as if you accept the reason given and want to help. In this instance, you will ask who you should send the invoice to and how soon payment can be arranged if you do so.
8. Watch Out for Anger
This is usually a bad sign. Your client probably doesn’t want to or can’t pay and is hoping you won’t want to talk to them again if they’re unpleasant. Alternatively, they’re just having a bad day. Ostensibly, you’re going to assume the latter. Without losing your cool, you’ll observe that the timing of your call may be bad and offer to call back later.
9. Offer Alternatives
What you really want is payment in full, but if your client really can’t pay, you need to look at alternatives. If you get your payment in a number of installments, that’s still better than not getting paid at all. Ensure that you record any and all commitments made by your client and that dates are specified.
10. Wrap it Up
Summarize the results of your call. How and when do you understand your client will be making payment? Ask them to send you proof of payment or to give you a call when the transaction has been completed.
11. Keep it Friendly
No one likes being handed over. Try to help your client avoid this and keep them feeling that you’re the kind of firm he or she wants to do business with. Check if they have explored other options such as getting a loan or find out how much they can afford to pay in monthly installments. Perhaps when times are better, your debtor will spend his cash on your business.
12. If All Else Fails, Seek Legal Action
Last but not least, don’t let yourself become the fall guy for someone who really has no intention of paying. Hand them over for legal action if you have to. After all, you kept your end of the bargain and your goodwill must have a practical limit.
The Bottom Line
It would be best if you didn’t have to turn to debt collectors at all, but if you are supplying retailers, they are going to expect account facilities or take their business elsewhere. A good strategy in this instance is to offer a substantial discount for COD payments and a smaller, but nevertheless considerable discount for payments within 30 days. It’s worth your while to do this since sending out statements and following up payments can be an extremely frustrating and time-consuming task.
It’s important to combine patience and goodwill with persistence and objective details, like asking for restating due dates and asking for time-windows for expected repayment. Utilize business credit profiles and history of your vendors, suppliers and clients to determine how much effort to apply to your different customers. At the end of the day, you need to run a business and cash flow, which is heavily dependent on collection of payments, is essential to success.
More From Seek
- Invoice Financing vs. Invoice Factoring
- How Long Does It Take to Get a Credit Card?
- How to Sell a Business
Photo credit: only_kim/Shutterstock.com
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