Closing a sale is one thing; however, receiving payment and securing cash in the bank can pose an entirely different challenge.
In an ideal world, we would set up pre-authorized debit with our customers to automatically withdraw payment from their accounts when due. However, it’s not uncommon for many businesses to operate on models where products or services are delivered prior to payment. Even if you strive to enforce upfront payment, you may need to make concessions to secure larger clients who have the leverage to negotiate more flexible payment terms. For instance, large retailers like Walmart typically require suppliers to ship inventory, only releasing payment 30-90 days later. This practice is also common in project-based work, such as consulting or construction, where a smaller deposit might be cleared upfront, but the bulk of the payment often won’t be released until the work is completed and deemed satisfactory.
For obvious reasons, this can pose a significant risk to a business, and good cash flow planning is essential for sustaining operations or preparing those orders before receiving payment. If this applies to you and you haven’t explored financing, consider looking into factoring, purchase order financing, or supplier financing for some non-dilutive options.
However, if you’re experiencing issues with delinquent accounts, here are some tips:
Maintain open and transparent communication with customers
Clearly outline payment terms and expectations from the beginning. Send timely and polite reminders before payments are due, and follow up promptly if a payment is missed. Communicating that you expect on-time payments will help prevent recurring tardy behavior. If you set the precedent that you’re lax with enforcement, it will only lead to poor discipline, and clients may delay payments more often because they know it’s easy to get away with.
Automate Reminders
Automating payment reminders is a good idea because it helps maintain consistency in communication to reduce missed payments. While it may make communication less personal, this can also work in your favor. By eliminating the necessity for SDRs or account managers to repeatedly remind customers about payments, you avoid putting at risk the relationships they have cultivated with their clients.
Offer Flexible Payment Options
Try to uncover the reason for their lapsed payment. If it’s unintentional and they are facing unforeseen constraints, make it clear you’re open and flexible to work out an agreeable solution for all parties. This could include installment plans or temporarily adjusting the payment schedule to accommodate your customer’s financial situation.
Escalate Gradually
Have a systematic approach for escalating collection efforts. Start with gentle reminders and progress to more assertive communication if necessary.
Offer Incentives
Consider offering incentives for early or on-time payments. This could be in the form of discounts or other benefits that encourage customers to meet their payment obligations on time.
Document Everything
Obvious, yet still often overlooked: keep detailed records of all communication and agreements with customers regarding payments. This documentation can be valuable in case of disputes or legal actions.
Escalating to a collection agency or pursuing litigation is a last resort and should only be considered once all other options are exhausted. The bridge is burned once you’ve crossed this point. They will likely discontinue working with you. Even if they don’t, you should consider terminating them as a customer, as past behavior is a good predictor of future behavior.