Running a small to medium business is tough work at the best of times. Monitoring and maintaining sufficient cash flow can be a constant struggle for many small business owners. Cash is required to pay suppliers, wages and bills, as well as fund growth opportunities when they arise. One of the biggest disruptors to cash flow are customers who don’t pay on time, dispute their debt or simply can’t pay due to their financial situation. Chasing these customers for payment is often extremely frustrating and time-consuming – after all, you have far better things to do.

You are not alone – most small businesses will encounter this issue at some time or another. There is no quick trick to recover debt successfully, as each situation is different. If one of your loyal customers runs into some short term difficulty and is unable to pay on time, they deserve some compassion. On the other hand, a chronic late-payer or a buyer who refuses to pay at all requires a firmer stance. There is no ‘correct’ method to get someone to make a payment. However, keep in mind that the method you use will influence the chance of a successful resolution, and also the reputation of your business. No one wants to deal with a company that is forceful, unreasonable or unpredictable – so apply some balance in your approach to preserve the relationship with your customers. 

It is essential to formulate and implement a well thought out approach to collecting overdue or unpaid invoices. There are many strategies you can apply from when you start to work with a customer as well as later, during the time their payment falls due. Here are our best strategies to manage debt recovery as a small business while maintaining positive customer relationships.

Set Expectations and be Proactive

The clearer you set your expectations with your customers from the beginning, the less chance there is of issues arising later. Communicate your credit terms and what you require from them after you complete the work or deliver the product. If you have defined terms (which you should), make sure to enforce them every time. If your customer pays late and you do nothing, they may be inclined to push the envelope further in coming months.

If your terms are not adhered to, do not wait to follow up or enforce them with your client. The debt collection process can start a few days before the payment is due. Send reminders to your customers that their payment is due shortly. If they still haven’t made a payment by the due date, follow up again with a phone call, email or automated accounting system notification. Taking action to contact your customer communicates that you are serious and gives them a chance to explain why they are late – often they have simply forgotten or are missing some key details.

Know all the Facts and Stay Persistent 

Before you reach out to your customer, make sure you know all the details. How much do they owe, and when do they usually pay? Is this the first time they have paid late? Have they successfully received your invoice? Often, the cause will be little more than a simple oversight. If they claim they have not received anything from you or don’t have the correct details, make sure to send these through and have them confirm receipt. Agree on a new payment date and send it through in writing, so there is no confusion. Make a note of this date and follow up with them again on the phone if they still have not paid. Difficult customers may need multiple reminders, so stay persistent while remaining as polite and friendly as possible.

Use E-invoicing and Implement a Late Fee 

Electronic invoicing (e-invoicing) is a system that allows you to automate the exchange of invoices between your customer’s accounting system and your own. This makes it easier for your business to be paid on time as reminders are sent automatically, payments are made online, and messy physical paperwork is eliminated, taking manual errors with it.

“Charge a late fee – your customers will know that you’re serious and have a process in place”

In addition to this, consider charging a late fee. It is a straightforward and effective method to discourage late payments. Unless they have a legitimate reason, make sure to follow through and bill them the fee. Your customers will know that you are serious and have a process in place, encouraging them to pay on time in future. Of course before you just invoice them this fee, ensure that it wont result in your relationship with your customer being totally destroyed.

Unlock Cash from Your Outstanding Invoices

If you are having trouble with late-paying customers even after implementing these strategies, it might be time to seek some external help. Professional debt collection agencies charge a small fee to do the heavy lifting for you. This is an appealing alternative for many time-poor small business owners that are better off allocating their efforts elsewhere. If cash flow is a problem, alternative funding solutions may help you unlock cash from your accounts receivable ledger. 

Invoice factoring allows your business to access cash sooner from unpaid invoices, but are still not yet due. Invoice finance providers such as TIM Finance (TIM) will pay you up to 90% of your verified outstanding invoice value within 24 hours of issue. When your customer pays and TIM receives the funds, they will remit the remaining 10%, minus a small fee to compensate for the early funding. Your business can use this cash instantly to pay your bills, hire new staff, secure new suppliers or invest in growth opportunities without being held at the mercy of your slow-paying customers. Customers are also much more likely to pay your invoices on time if they know you have a financier onboard as they then know they cannot string you along forever. So a good option is to implement your collection protocols but to also utilise invoice finance so that even f your customers do pay on 30-45 days as per your trade terms, you can actually access up to 90% of your invoice value/s within 24 hours regardless instead of waiting.

Don’t let a lack of cash flow hold your business back. Use your unpaid invoices to unlock tomorrow’s cash today with TIM Finance.