Tips to Avoid Slow-Paying Clients Before They StartPosted by Factor Funding Co. on September 15, 2016
Every business dreads certain clients: the ones with delinquent accounts, those who make serial late payments, and clients who consistently push the envelope with how long you’ll wait before calling the debt collectors. Slow-paying clients can gradually zap your company’s resources, trapping you in a cycle that ultimately damages business. The best way to deal with slow-paying clients is to avoid them from the start.
Carefully Vet Potential Clients
You may be tempted to sign contracts with anyone who shows an interest in your product or services, but a wise business owner carefully vets clients before agreeing on a professional relationship. To avoid collection problems with a client in the future, pay attention to comments about finances the client makes during initial conversations. Checking out a client’s credit score may give you more information, but in today’s fluctuating economy, bad credit is no longer a foolproof indicator of a delinquent client. Instead, listen to the client and be wary of those who appear to be unable to pay for your services.
If, for example, a client immediately tries to negotiate the price of your services down, he or she may not be in a position to pay what you expect. The client may not understand the true value of your work compared to competitors and may hesitate to pay his or her balance in full. The client’s initial stance on your prices can be just as indicative of the kind of client he or she will be as the actual finances. If you have reason to believe that you can’t trust the client to pay you on time and in full, trust your instincts.
Be Clear About Your Payment Terms
All too often, a customer signs a contract and then quickly starts backpedalling. Customers may claim you failed to fully explain your terms, or worse—that you purposely tried to trick them with false information. A payment term dispute can damage your company’s reputation and make you lose an important customer. To prevent this troublesome type of slow-paying client, be clear and concise when discussing your company’s payment terms. Make sure the customer understands your policy, and put it in a place that’s visible to the client at all times (such as on a website).
Stay On Top of Your Finances
A reliable client can quickly turn into a delinquent account without you noticing until he or she has racked up thousands of dollars in late payments. Falling behind in invoicing or keeping disorganized records puts your business at risk. Establish a routine for client billing and collection, such as sending an invoice one per month. With an organized, consistent invoice plan, you’ll immediately detect a late payment or precursors to a pattern of lateness. Hire a bookkeeper if you’re too preoccupied with a big project to pay close attention to your finances. Due diligence can solve a late-payment issue before it damages your company.
Never underestimate the power of being polite. Old-fashioned good business can work wonders to improve a slow payment situation. Simply adding words such as “please” and “thank you” to client invoices can actually increase your chances of getting paid on time by 5%. Expressing your gratitude for the client’s business and your genuine appreciation for clients who consistently pay on time can make clients have a more positive response when it comes time to pay a balance. Being cordial puts your company at the top of the client’s payment priority list.
Convenience is another key to preventing slow payments. It’s natural for a client to have certain times of the month that are easier for them to make payments, or ways of paying someone that’s more suitable. A company that makes clients mail in checks, for example, may experience numerous delinquencies from clients who don’t have the time to fill out a check and put it in the mail. Make payments convenient for your clients, offering online billing, automatic draft options, and customized payment schedules. This cuts out the time it takes to mail hard copies and makes your clients more inclined to pay on time.
Your business depends on the revenue you receive from clients, and late payments can upset your delicate cash flow balance. In all of your efforts to avoid contracting with negligent clients, stay vigilant. Don’t allow a slow-paying client to sap the life out of your company. Instead, vet your clients, state your expectations clearly, and do your best to make the payment process as easy as possible.