It starts with the best intentions. You have a product or service that a customer wants. The sales cycle culminates with a signed contract—a promise to deliver goods or services and receive payment. But for some customers, the promise to pay is broken by a few days, weeks, months and, sometimes, forever. This is very costly for a business. Aside from incurring hard costs and lost profit for a particular transaction, customer payment delays reduce the cash flow of a business and divert attention (e.g. time) from activities that are generating profit.
So, how can we avoid this unpleasant outcome? Although payment delays and bad debts occasionally will happen, this article highlights some practical ways for you to limit exposure to broken promises when it comes to receiving timely payments from customers.
Tips for Reducing Payment Delays and Bad Debts
A successful transaction begins well before a signed contract. During the proposal stage there are several considerations that ultimately help reduce payment delays and bad debts. During this stage, consider the following:
- Qualifying a customer’s ability to pay
- Establishing upfront payments and clear payment terms
- Offering early payment discounts and charging late payment fees
- Addressing price increases and pass-through charges
- Requiring signed contracts
After a signed agreement has been obtained, there are still several considerations that can impact timely payment. To ensure timely customer payment after the proposal stage, make sure you are:
- Delivering goods or services according to the contract or purchase order
- Promptly and completely addressing any issues regarding delivery of goods or services
- Invoicing the customer promptly with the correct level of detail and information required for payment
- Making it easy for customers to pay with multiple payment options
If payment is still owed after delivery of the good or service, the ability to collect often diminishes. To increase the likelihood of collections in this situation, you should do the following:
- Immediately and consistently follow-up on late payments and outstanding amounts
- Document customer contacts, conversations and commitments
- Stop performing work for non-paying customers
- For certain customer accounts, consider accepting a lower amount for immediate payment
- Consider legal action for significant, delinquent accounts
Payment delays and bad debts sometimes happen. But when you follow the above suggestions, this will help you reduce the risk of such while maximizing the profit and cash flow of the business.
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