How to get paid on time without impacting customer relationships
Collecting payments when these are due is vital for any business to succeed. Late payments by your customers can lead to an array of issues such as cash flow problems, low productivity and stress.
A recent study showed that debt collection was the greatest financial challenge for more than half of South Africa’s small businesses. How can late payments be prevented to keep both your business and customer relationships strong?
Here are some tips:
- Establish clear terms of payment
Murky communication can cause disputes. Make sure that your customers understand exactly when and how payment is due, find out what documentation they need from you for the payment, and send this along with your invoice.
- Know your customers
When you can, it’s ideal to acquire customers who will pay immediately, making debt a non-issue. However, in certain cases, you’ll need to agree to credit sales terms of 30, 60, 90 or even 120 days in order to win business. Before you on-board a new customer, however, it’s essential to do a thorough credit check. If they have a poor payment history, there’s a risk that they will be late in paying your invoices, or even not pay them at all. Is your business resilient enough to accept this degree of risk? And with this in mind, are you confident in your current credit control process?
- Be professional at all times
A customer who misses a payment deadline by a day or two may have simply forgotten. Sending a friendly, yet prompt reminder will hopefully resolve the issue quickly and easily.
- Follow up on overdue accounts immediately
Keep track of when each of your accounts is due and send a reminder and duplicate invoice the first day after this date. If you haven’t received payment within a work-week, enquire if there’s a reason and receive a firm commitment on a new date. If payment is overdue again, it’s time to send a formal collection letter – including evidence of previous agreements, demand of payment and consequences for non-payment.
Factoring: a strategic alternative
Even when your customers do pay on the due date, debtor admin takes time and ties up your staff – which can mean you have fewer people focusing on growing sales or winning new business.
Have you ever considered factoring as an alternative option? This financial strategy allows you to access working capital that’s owing on your invoices immediately, rather than waiting out your credit sales terms. You also have the chance to optimise your admin resources while maintaining the highest levels of professionalism when it comes to managing payments. This is because the factoring company takes care of debtor admin and credit control on your behalf.
Here’s how factoring works
When you factor your accounts receivable, you “sell” your invoices that are due for payment in the next 30, 60, 90 or 120 days, to a factoring company. The factor pays you 75% of the invoice value up front (and the remainder, minus an agreed admin fee, when the invoice is paid in full by your customers).
This has many benefits:
- Avoid cashflow problems
Because the factor pays you up front, you avoid having assets (debtors) on paper, but no cash to pay staff, suppliers and so forth – which can damage your credit score and suffocate growth.
- Rapidly expand your business
With instant access to working capital, you can expand your business – employ more staff, invest in equipment – as fast as you’re able to acquire more work. Also, since you can now take on customers who ask for credit sales terms of 30+ days without damaging your cashflow, you gain an advantage over your competitors who may not be able to offer the same attractive terms.
- Invest your energy where it counts
With the confidence that all your collections are being handled by a professional, you don’t need to worry about staying afloat. Instead, you can focus all your time into the creative and strategic work that powers your business.
Put your customer relationships in safe hands
If you are interested in accessing these benefits while also protecting your valued customer relationships, it’s important to choose a factoring firm that will take on the customer liaison, debtor admin and credit control roles with respect and professionalism.
Merchant Factors is one such firm. This fully independent factoring company has been providing business with tailor-made factoring solutions and helping these businesses prosper for 30 years.
Over the decades, Merchant Factors has developed a deep understanding of how to manage debtor admin with care and transparency, in order to nurture and grow the relationships between businesses and their customers.
For professional, fast and flexible business finance – contact Merchant Factors.
Finance beyond the Numbers.