As a manager, you work hard to balance the external parts of your business like sales and customer service with internal aspects like hiring, training and team management.
If your customers don’t pay their bills on time though, cash flow stalls and all your hard work amounts to nothing. Here are some basic tips you can use to decrease late payments from customers to keep revenue up and allow you to focus on other aspects of your business.
1. Establish Clear Policies And Procedures
The easiest way to decrease late payments is to clearly define expectations both to your customers and to employees in your Accounts Receivable billing department.
You need to define the credit policy your employees must follow and make this information readily available for customers.
- Outline your policies: Explain your company’s rules for when you grant credit to consumers and what criteria you use. Does your company look at past payment history? Do you run credit checks? Explain the procedures and make this information publicly available for customers to access.
- Explain your level of leniency: Are you strict on how credit is granted? If you run checks or review histories, you are most likely more strict. If you offer goods and services on credit with no prior validation, you are probably more lenient with your policy.
- Do you make exceptions? Are there times you are willing to make exceptions for consumers who would not usually be granted credit? If there are exceptions to your usual decision-making process, outline these in the policy as well, and train employees to communicate the information to consumers.
- Customer/employee interaction: Your office structure and business model will determine how many employees a consumer interacts with during a transaction. To decrease late payments, it is best to notify customers who from your organization will be reaching out during the invoicing and payment process and the channels they will be using.
Past Due Collection Procedure
Written policies and procedures aren’t just important during the sale. Your business must have a plan for how each account is expected to be settled. As with a strong credit policy, a pre-stated collection procedure can help inform customers of their responsibility in paying a debt and what will happen if they do not.
This alone will do much to decrease late payments. Make sure your AR department and customers know:
- Expected payment terms: How long do customers have before they must pay? Do you offer recurring payment schedules?
- Payment reminders: Does your office send payment reminders by text message or email? If so, this must be communicated at the time of sale, and an opt-in should be collected.
- Late fees and interest: Will you charge a late fee or interest on past due payments? Present this information to consumers so at the time of sale so they understand their obligation and are not hit with surprise costs in the future.
- Payment incentives: Will you offer an incentive for paying early or paying upfront? Offering such incentives can encourage consumers to make more timely payments.
- How many follow-ups: You may not need or want to tell customers how many follow-ups they should expect. However, you should include this information in a policy and procedure document that can be internally accessed by your accounts receivable department.
- Third Party debt collection: If you use a third party for collection of seriously delinquent payments, you may want to let consumers know. This way, if they are eventually contacted about an old debt that originated from your company, they will not be suspicious of the debt collector or agency that contacts them.
As part of your internal collection procedures, you should also establish a follow-up timeline your employees can reference. You are likely to have accounts at many different stages of payment.
Treating a customer in the invoicing stage the same as someone 30 days past due is a bad customer service practice. Mishandling customers during payment (the least fun stage of any buying process) may even discourage customers from making future payments on time.
2. Capture The Right Information
When your business offers goods or services on credit, you run the risk of client nonpayment. The odds will be even higher if you aren’t capturing the proper information during a sale. Train all employees to obtain:
Basic Demographic Information
- Full name
- Telephone number
- Alternate phone numbers
Preferred Contact Method
- Text message
- Paper letter
- For all digital communication channels that apply
The more relevant information you capture, the easier you will make the invoicing and payment process. For instance, customers are now more used to – and often prefer – digital communication channels over traditional paper invoices.
Offering to send invoices and payment reminders by text or email will decrease late payments by offering a faster, more convenient digital payment option. This is already relevant to many consumers.
As younger generations become a larger portion of a customer base and technology advances, it will become essential to offer alternative invoicing and payment options.
Complete information isn’t just a necessity for your billing department. If your company outsources delinquent account collection to a third party, your collectors need that information too.
According to the CFPB’s Notice of Proposed Rulemaking (NPR), debt collectors will soon be able to widen their use of digital communication. This fact and the NPR’s new guidelines for validation notice contents mean that you, as the original creditor, are responsible for collecting and passing along the data points they require.
3. Implement Multi-Channel Collection
Another tactic to decrease late payments (perhaps the easiest way) is to offer your customers more choice. Not everyone is going to have the same communication preferences, work the same hours or pay bills the same way. Multi-channel collection will help you increase timely payments by offering as many avenues for customers as you can.
Multiple Payment Types
Customer Representative Assisted Payments
Technology is changing almost every aspect of business, from the first interaction through social media or your website to the last touch during payment. It’s important to stay current by enlisting software that can help you serve customers the ways they most prefer. In the end, using digital tools to send invoices, payment reminders and payment requests is one of the simplest ways to decrease late payments and increase revenue.
For more information on the benefits of digital communication methods like text and email, download our Traditional Vs. Digital Comparison chart.