Getting On Top of Slow Payers

Someone once said (I don’t remember who) that the key ingredient for every business is a paying customer. Note the emphasis on the word “paying”. It seems obvious that there isn’t any point in dealing with customers who don’t pay but unfortunately we don’t always take notice of what we know to be obvious. Why do you suppose this is? I think perhaps that sometimes our focus on customer service and getting the job done takes psychological precedence over the actual reason we’re in business in the first place. People are in business for all sorts of reasons, but usually one of them is to make a profit.

There have been huge books written on how to deal with slow payers. It’s a big subject, but fortunately there are a few basic strategies that you can use which will make a big difference. Here are some of them:

Strategy 1 – Don’t allow them to be slow in the first place.

Take a look at your credit terms. Find our what others in your industry are doing. If you’re offering 30 day terms when everyone else is offering seven, there’s a good chance you’re just going to attract losers who’ll cause you grief.

Depending on your industry, consider asking for payment up front or a least a substantial deposit. For new customers, you can ask for personal or directors’ guarantees. Make sure have a watertight contract with your customers that protects your rights. See a lawyer if you have to – it’s money well spent.

Strategy 2 – Let them know you’re serious about getting paid.

Make sure your customers understand your terms. Tell them verbally, put it in your contract and make sure the due date in prominent on your invoice.

Send reminders before the invoice falls due as a “courtesy” and start sending automatic reminders the second it goes overdue. Your accounting software should be able to do this for you automatically.

Have a documented system to follow up on slow payers and be willing to stick to it.

Strategy 3 – Make sure your system works.

For larger customers, get a formal credit check. For smaller ones, consider getting a credit card authorisation upfront like hotels and car rental companies do.

Make the process of payment simple. Offer bank transfer, BPay and credit card facilities. Remember that you can pass on the fees to the customer if you wish.

Strategy 4 – When all else fails, act decisively.

Sometimes things go off the rails. This is when it becomes necessary to have a clear idea in your head as to exactly how far you’ll go. It’s important to think about this before things get too far because once you’ve gone down the track of negotiating with somebody for a period of time there is a tendency for you to feel “invested” in the process and you’ll feel less inclined to be decisive.

So, when the time comes, get your lawyer to start the ball rolling. Often a letter is all it takes, but if not, be willing to make a business decision as to how far you will go not an emotional one.

For more information, subscribe to our video series “Turbocharge Your Cash Flow