There’s nothing like the frustration of dealing with customers who don’t pay bills on time. For small business owners in particular, you rely on invoices being paid for cash flow.
There’s no justifying late invoice payments either – you’ve lived up to your side of the deal, and it’s not expecting too much to be paid for it. But it happens all the time.
The thing is, there are signs that a customer may not pay on time, and there are things you can do to get ahead of these situations.
Monitor customer interactions for signs they may not be reliable. Have a signed contract in place and do what you can to ensure a healthy customer relationship. Take steps to encourage customers to pay you on time, and if they don’t, consider invoice financing as a way to ease the short term pressure on cash flow.
Impact of non-payment of invoices on businesses
The impact of unpaid invoices on a business can be significant. The biggest problem of unpaid invoices or late invoice payments is it severely impacts your cash flow.
Without money coming into the business, you need to dig into your own reserves to cover overheads and purchase inventory. Many small businesses don’t have big bank balances, and if they can’t get a form of financing to bridge the gap, it can turn into a critical situation.
82% of businesses that fail do so because of cash flow issues. Not all of these will be related to invoice payments, but plainly it contributes to what is a significant issue for business owners across all sectors.
Five signs your client won’t pay your invoice on time
So what can you look out for? By spotting these types of behaviour in advance, you give yourself a better chance of being paid on time so you don’t have to spend time navigating late invoices later.
You don’t have a signed contract
When you have a contract with your client, you have an agreed set of terms and conditions that outline how you’ll do business – in this instance, it includes all the expectations around invoicing and payments. These invoice terms and conditions are also referred to as terms of trade.
If you want to charge late fees on unpaid invoices, they need to be communicated in advance. A contract is the ideal place to outline these.
If your customer doesn’t want to sign a contract, that’s a red flag. It may be worth considering if you really want to do business with them.
The client is disorganised
It actually doesn’t take much to pay invoices on time. It’s just about prioritising payment and being organised enough to make it happen.
On the organisation side of things, it’s fairly easy to spot a disorganised customer early on. If they’re late to meetings, unprepared or they don’t communicate well, that’s a sign they’re disorganised. It may be fair to assume they’ll be just as messy in other parts of their business too.
The client insists on paying with a cheque
Cheques are relics of the past. Hardly anyone used cheques anymore, and some banks will even refuse to honour them. They’re also notoriously untrustworthy, and there’s no guarantee it won’t bounce.
While offering a range of payment options is advisable, if a customer insists on only paying with a cheque then it’s another red flag they may be unreliable.
The client is indecisive
If your client is indecisive about the scope of the project, there’s a greater risk of them being unsatisfied with the end result. They may query the invoice, which means it takes longer for them to pay it, or refuse to pay it altogether.
It helps to outline specific agreed deliverables in your contract so both parties understand what’s expected and you can refer back to it if needed.
They don’t trust your rates
Be wary of clients that question and debate your rate before you start working with them. Even if they agree to the rate, if they think it’s high, they’ll expect a high standard of work.
At the end of the project, they may argue that it’s not worth the price you’re charging them – even if it’s in line with market standards.
When questioning the price of a piece of work, customers may not have a good understanding of market rates. It may help to show them examples of previous relevant work and/or testimonials to illustrate the value you can provide.
What to do when a customer won’t pay?
When a customer hasn’t paid an invoice by its due date, check in with them politely. Often it’ll be due to a basic error that is easily fixed.
If they don’t respond, or if they refuse to pay, you have a few options to pursue payment.
The key thing to remember is, if an invoice is overdue for payment, don’t give up on it. It takes time and energy to chase invoice payments, but it’s always worth it.
- Send them a reminder after the due date has passed.
- Contact someone else from the customer’s business – ideally someone from the accounting/finance department if you can.
- Contact a business mediator to work with both you and your customer to resolve the invoice.
- Consider offering a payment plan if the customer can’t pay the outstanding balance in a lump sum.
- Get a collections agent involved to manage collection of the invoice.
- Contact a lawyer about your legal options, or look into the small claims court.
How to get ahead of customer non-payment
Having strategies to chase outstanding invoices is helpful, but ideally you’d prefer to avoid getting into these situations in the first place. You may not always be able to prevent it from happening, but you can help it to happen less.
Here are a few tips that enable and encourage customers to pay invoices on time:
– Credit check customers before working with them. Monitor their credit history regularly too, as it can change rapidly.
– Come up with a good set of business terms. This includes making your terms of trade clear and setting realistic payment terms for late-paying clients. Talk customers through terms at the start of the relationship so there’s no confusion.
– Invoice immediately after the work is finished. Delayed invoicing can lead to confusion and queries if the customer can’t remember details.
– Charge late invoice fees. This encourages customers to pay an invoice before it ends up costing them even more. Just make sure you communicate late fees in advance. This is required by law.
– Schedule automated reminders. Online accounting and invoicing systems make it easy to schedule reminder emails so you don’t have to spend time chasing up payment manually. Remind them on the day the invoice is due, and again a few days later if they still haven’t paid.
– Nurture customer relationships. Stronger relationships encourage mutually beneficial business behaviour, such as paying invoices promptly.
– Offer a range of payment options. In today’s world, there are a range of different ways customers can pay their bills. Many will have their own preference, and by offering a range of options, you make it easier for customers to pay you. As mentioned above, just don’t take cheques!
– Gauge customer satisfaction. Check in with them after you’ve finished work to make sure they’re happy with it. Often, if customers aren’t happy, they don’t say anything – but if you call to talk about it, then you can clear up any issues before the invoice is due.
Consider the benefits of invoice discounting with FundTap
As we’ve mentioned, one of the big issues with customers not paying invoices on time is the pressure it puts on cash flow. This is where invoice discounting comes in.
With FundTap, businesses can get invoices paid at the click of a button. FundTap pays your invoice, and you repay that value when the customer pays the invoice. This means businesses can pay bills or staff, purchase stock or reinvest back into their operations.
While it doesn’t help to recover invoice funds, invoice discounting gives you cash flow between the time you invoice and the time it’s paid.
FundTap is designed for small businesses and startups in particular, and has been proven to be highly effective at enabling them to grow. In the last two years, the average FundTap customer has increased their turnover by 54%.
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