Companies and organizations are often challenged with what to do when clients don’t pay within terms. There are some accounts that routinely do not pay outstanding invoices within your terms. These are opportunities to improve your company’s cash flow. While you may have your payment terms established at Net 30, perhaps a discount offered to clients who make payments earlier, within 10 days, would encourage some customers to pay early. However, it seems that the majority of clients pay past the established Net 30 days.
There are changes that you can make that will help to improve receivables, improve cash flow and get your clients to pay within terms.
Change Your Terms Without Really Changing Your Terms
One option to consider is to change the terms that you extend to a shorter time frame. As an example, you could shorten payment terms to net 15 days instead of the standard net 30 days. Should the client fail to make the payment within the 15 days, you may graciously wish to offer a short extension.
If you decide to use this tactic, the goal is to offer an extension that does not exceed the net 30 days that you actually require. As an example, you can offer the client an additional 10 days to make their payment and that would bring the payment in at 25 days, still ahead of the net 30 days.
Put Controls In Place To Accelerate Payment.
Should the majority of your client base pay beyond your terms, this is an indication that it is time to rethink your credit strategy. Should your payment terms be set at net 30 days but payments routinely arrive 60-90 days from invoice date, then you might want to consider obtaining a credit card and a signed authorization form at the beginning of the relationship.
By securing credit card payment authorization from the start, with terms that clearly state that if payment is not received by day 31 or day 45 then you can charge the customer’s card. This is the chance that the customer will eventually cease issuing checks for future goods or services orders and you will automatically charge the card at day 31, 45, etc.
The Reality of Doing Business With the Customer(s)
The reality is that not all customers will pay within your terms. There are some customers that will pay only as their corporate culture or other business factors dictate. If you cannot do business with the pay cycle of the customer and no special arrangements can be made, then it is time to move on.
Despite the prospect of doing business with this “great” customer, you may have no choice but to move on if the payment terms are not acceptable to you for whatever reason.
What If The Customer Is A Chronic Late Payer?
The cost of maintaining a customer that is a chronic late payer may far exceed the benefits. You may want to consider the option to fire such a client and move on. The time spent on such a high maintenance relationship could be better used to cultivate new leads, nurture and grow existing relationships, and more. It may well be in your best interest to let that client go. You could gain more by severing ties and moving on.
Considerations When The Customer Has No Intention of Paying
Cut your losses. Time spent chasing bad debt is not a good use of your time. Draw a line in the sand and stick to it. If payment is not made, send the claim out for collections. The earlier that you take this step, the better your chances are of collecting. Let a debt collection attorney pursue your money while you move on to more profitable tasks.
Credit Policy Review and Debt Collection Policy
You can take a more proactive approach to help insure your collections happen within your terms. We suggest that you engage a commercial debt attorney, such as FFGN, to review or help create a credit policy and debt collection policy. With a clearly stated policy, your staff will waste far less time chasing payments and your company’s receivables should improve.
Should you currently have outstanding receivables, contact our office and we can provide you with an assessment as to the viability of collecting those funds.
