If you sell business to business on credit terms, there is a high chance you have been paid late or not at all by your customer. Late B2B payments are unfortunately common. This is because every small business that sells on credit terms will experience a cash flow strain. Whether your customer wants to extend their payments to improve their cash flow or whether they cannot afford to pay you, inevitably you will have to chase down customer nonpayment in order to keep your business strong. Here is how to collect late payments from your customers.
- Review Your Invoicing Practices
- Call to Confirm Invoice Receipt
- Make It Easy to Pay You
- Consider Using a Collections Company
- Factor Your Invoices
Review Your Invoicing Practices
If prompt customer payment is important to you (and it should be) then you need to take a hard look at how you invoice your customers. First, is all the information on the invoice correct? This seems like a no-brainer, but many unpaid invoices go unpaid simply because of typos and errors on the invoice. Be sure that the contact names on the invoice are up to date and that the payment amount and deadline are both accurate. If a customer is disputing payment for an invoice, having errors on the invoice could prevent you from being paid.
Call Your Customer for Invoice Status
Next, it is important to know that your customer has received your goods and services and also your invoice. If there was any issue with your product or service, it’s best to know about it sooner than later so you can remedy the issue. Confirm that your customer has received the invoice and that they are aware of the agreed upon credit terms. You can also use this call as an opportunity for another sale.
Make It Easy to Pay You
An overlooked way of getting paid on time is simply making it easy for your customers to pay you. Clearly state where your customers can pay you on the invoice, whether it is an electronic invoice with a hyperlink or a physical invoice with a PO Box. Making it challenging to pay an invoice will only hurt your cash flow.
Use a Collections Company
A collections company will be expensive, so it is best to think of this as a last ditch effort to collect late payments from your customers. They may be able to recover some payment, but collections services can cost up to 25% to 45% of the debt amount. Ideally, by calling your customer and sending polite follow-ups on the invoice status, you will be able to avoid this scenario.
Factor Your Invoices
Invoice factoring is a way to get instant payment on your open invoices. This service comes at a cost of 1% to 4% of the invoice value. The factoring company purchases your invoices, pays you immediately, then waits the duration of credit terms before collecting from your customer. You do not have to handle the collections process. Not only does invoice factoring improve your cash flow, but you have more time on hand to make more sales with your available working capital.