Changing a culture of late payment
If your company suffers because of a culture of late payment then it is important to try and change this. Late payment cultures arise because of cash flow management processes, but they can hurt your business by limiting your cash flow too. Herein we consider how you can tackle late payments that are affecting your business.
Give credit carefully
It is always worth checking the credit rating of customers that are asking for credit from you. If you find that they have a poor borrowing history then demand cash up front instead. By checking their credit you will immediately tell your customer that you are taking this seriously too, making them more likely to pay on time.
Motivate early payment
Offering discounts for early payment and penalties for late payment will create an incentive for on-time payments. By making this clear you can set your payment expectations and your customers will be more likely to spend quicker to spend less.
Send a carefully worded collections letter
When payment becomes overdue it is important to inform your customer that this is not OK. Telling them about the next steps and informing them of your external collections agency will prompt them to pay quickly. Remember that you do not want to alienate customers, however, and be careful to ensure the letter is polite while strongly worded and clear.
Use a collections agency
The final key step in changing a culture of late payment is to use legal force to get your money when it is overdue. If you allow people to pay you late then you will keep getting late payments and will keep being faced with the cash flow problems that accompany this. A collections agency, however, can ensure that you get your money when you need it and when it is due. Once you’ve used a collections agency a few times you will notice a change in payment culture and people will begin to start paying you on time.
To change a culture of late payment you need to communicate clearly with your customers and operate a zero-tolerance policy when payments are late.