Only around 70% of new businesses with employees make it through the first two years, according to recent data from the U.S. Bureau of Labor Statistics. As a business owner, you know how difficult it is to maintain profitability regardless of the age of your organization. This is why late paying customers make it that much more difficult for your business to survive.
Most of your clients who do not pay will fall into one of three categories. By better understanding each of the clients within these groupings, you can develop strategies to recoup late payments and lessen the impact of nonpayment.
- Those who will do anything to avoid paying
The most effective method for dealing with customers who never pay is to avoid doing business with them in the first place. Before moving forward with a transaction, pull their credit report to get an idea of their payment history, and use this information to avoid getting involved with unreliable customers.
This approach is not always possible, however. If you do get involved with a customer who resists payment at all costs, act quickly and consider working with a collection agency or moving forward with litigation.
- Those who will make payments sporadically
In many of these cases, customers who pay sporadically do not always remember to pay their bills or have so much going on that making payments on time is not a priority. To obtain payment, remind your customer of what he or she owes consistently. For example, when you send out the original invoice, send out a reminder a week before its due date.
- Those who cannot pay because of financial trouble
For customers who cannot pay due to unforeseen financial circumstances, consider implementing a payment plan for them. Do what you can to develop a payment plan your customer can commit to while not negatively affecting your cash flow.