By Fernando Berrocal

‍

As a future startup business owner, you will encounter numerous circumstances that impact your business relationship with your future potential customers. One of the most frequent and unfortunately harmful of these situations for your organization is when you have provided your clients with products and/or services on time, but they have not made a complete payment for it.

‍

‍

Then, you might make different kinds of approaches to communicate with them but with no luck. The invoice you sent has been overdue for several weeks, and this customer has a history of having late payments. We refer to these people as slow paying clients and, from what we were able to describe in the lines above, you will not want to encounter any of these individuals.

‍

The bad news is that you will undoubtedly encounter them more frequently than you anticipate, regardless of the type of small business you operate and the best efforts on your part and of your startup team. A business survey by the National Federation of Independent Businesses (NFIB) showed that 64% of small businesses asked said they had customers who hadn't paid their bills in at least two months. A survey conducted by the online business PaySimple a few years ago revealed that approximately 80% of small businesses across all industries have trouble getting paid on time.

‍

Giving your consumers the benefit of the doubt might make logic in most cases, at least in the first approaches with these customers. Most of them may be well-intentioned individuals or organizations that will eventually pay you, as they frequently do with their other business partners. However, remember that their persistently late payments may seriously impact your cash flow, so be careful if you recognize a pattern. It would be wise for you to take action to stop the problem of late payments in its terms and stop new clients from turning into slow payers as this is terrible for the general financial health of your firm.

‍

The question to ask yourself will be:  How do you start to stop having slow-paying clients? This can be done by implementing one or more of the strategies listed below, encouraging your customers to make timely payments.

‍

‍

• Pick the Appropriate Payment Arrangements: According to a Xero survey, small business clients often pay two weeks later than what was agreed upon by both sides. With that in mind, it is advised that you should always add two weeks to your estimated payment date, regardless of the payment conditions that the two of you decide upon. Consider employing payment terms of two weeks or even fewer, depending on the circumstance, if you wish to get paid in 30 days.

‍

• Offer a Small Discount for Clients Who Pay Early: A little positive reinforcement might help you get paid on time by your potential clients. Consider offering clients a discount on average of 1% or up to 2% if you have received their payment a certain number of days before the invoice due date. Finally, if your business is in a good business scenario, you can do these small discounts more frequently for recurring clients to seduce them to your business brand.

‍

• Pick Your Vocabulary Wisely: A “FreshBooks” research found that proper communication between businesses and their potential customers depends on the appropriate use of language. It will be simpler for clients to understand when payment is due if, for instance, you, the business owner, state "payment due within 20 days" rather than "net 20". Finally, even though the phrase "due upon receipt" could sound urgent, it provides your customers with too much flexibility.

‍

• Try To Impose a Late Payment Penalty: This is the first method that comes to mind when discussing late payment.  Unfortunately, not all small business clients will be inspired to make a purchase when they might potentially save money. However, if paying late has a cost of the percentage, they might pay promptly since the higher the price of the product, the higher its overall final price. They might pay attention to a modest sum of 1.5% of the total cost for example. Sometimes, with that penalty, you will receive that check in the mail faster than expected.

‍

‍

• When an Invoice is One Week Overdue, Send a Polite Reminder:  In many different situations, invoices merely get forgotten in the different messages received. You must prepare for this and ensure that you preserve the message so that you may send it again if necessary. After an invoice is a week overdue, you should kindly follow up with the client to get them back on your customers' radar.

‍

• Provide an Online Electronic Payment Alternative: You make it easier for customers to pay by allowing them to do so instantly through popular online payment solutions such as “PayPal” and “Shopify”. Additionally, it enables customers with little cash to pay with their credit and debit cards. You won't have to wait around until they have money in the bank this way.

‍

The Most Crucial Aspect is To Maintain Your Composure:

‍

While there is no assurance that any of these will always avoid late payments, they may be effective with some clients, and you'll feel better knowing you're doing your part. Regardless of the strategy you choose to use to reduce the issue of late payments, make sure your client agreements and invoices are clear about your payment terms and conditions. When contacting clients who have fallen behind on their payments, being explicit in your communication provides you leverage.

‍

Never undervalue the importance of establishing positive working connections with your clients. Keep your composure and be polite while checking on past-due payments, no matter how frustrated you may feel.

‍

Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.