Your customers & late payments

Hamish Mexted Accounting & Compliance, Managing Cash, Xero & Addons

Everybody (including Chartered Accountants!) has a small handful of customers who pay late. How quickly you eventually get paid by these customers depends on how you chase them for payment. Here’s a few tips on coping with late-paying customers.

Payment details
There are always customers who have lost your bank details when it is time to pay. To minimise the chance of this, make sure your payment details are printed clearly and obviously on your invoice and statement. It’s more likely that they’ll lose your payment details if they’re only printed on a supplementary sheet and not on the invoice itself.

Taking this a step further, you can make it far more convenient for your customers to email your invoice and include on it a “PAY NOW” button. This button can link to a credit card facility for them to pay on the spot. So when your client receives the invoice, they just click “PAY NOW” – it couldn’t be easier for them.

Late payers
Even if you’ve given people your bank account number, and given them a “PAY NOW” button, it’s likely you’ve still got a couple of chronic late payer (yes, Chartered Accountants have them too). Those customers usually always pay, you just don’t know when it’s going to be. This can affect your cashflow and overall morale next time you’re dealing with that customer.

It’s important that you keep an eye on your Aged Receivable report to identify the ‘chronic’ customer before they become ‘too-chronic’, and send statements as soon as the payment is overdue. If the statement doesn’t, call the client and ask (politely) for payment.

Payment in Advance or work in progress payments

Sometimes there are bigger orders which includes a lot of working hours and materials. Ask for a payment up front from your customer so you’re not having to finance everything in advance. If you are financing everything, you’re effectively acting as a bank for your customers, which in turn will cause cashflow problems for your business.

There are different options for getting the cash in before completing the work. The first is invoicing in advance, or requiring a deposit when the contract is first signed. Otherwise think about getting a progress payment throughout the job on reaching milestones on the work. Otherwise, get the customer to make equal payments across the length of the work. Figure out what works for your cashflow and stick to it. If you don’t know where to start, ask your Chartered Accountant.

Customers who can’t afford to pay just yet or for longer
Every business can have unforeseen cashflow difficulties. An unpaid invoice might mean the customer themselves has short-term cashflow issues. Talk to them. Call them, ask them what’s happening, and get a fix on when they’ll be able to pay. Openness and communication goes a long way. You never know, their cashflow issue might be caused by something you can work with them on.

For example we’ve seen a builder who couldn’t pay their bills because an electrician they did some work for hadn’t paid them. We did some accounting analysis on their workloads and found some work they could offload to the electrician. This improved the electrician’s cashflow and meant that the builder got paid. Win win.

Late Fees
We’re not big believers in late fee charges – they’re generally not that effective because the late payers don’t care about them. You’re better to start the dialogue with them and negotiate an extension or a payment plan that works for all concerned. It’s always better to get the money over a longer period of time,  than to write off the entire amount of the invoice.

Customers who leave without paying
The worst situation is one where a customer leaves you without paying. If you try to contact them, they won’t answer their phone and emails won’t be replied to. It then becomes a difficult choice of either bringing in the lawyers, calling the collection agency, or simply walking away from the debt. Once it’s reached that stage you’re blacklisting the customer and won’t work with them again.

Now obviously this is a last resort. The key to avoiding this situation is to have a process in place that you follow 100% of the time. This process will reduce the number of customers reaching the ‘last resort’, meaning you get more of your cash, and you get it quicker.

We’ve helped customers in a range of industries to improve their debt collection processes. If you’re interested in finding out more feel free to contact the team at iif Chartered Accountants, 108 The Terrace, Wellington, or [email protected]