5 Strategies To Avoid Payment Delays

Who cares if one or two clients are late with their payments when you’re swimming in cash flow?

Wrong.

You never want to set a precedent that your clients can delay paying their invoices — that’s just bad for your work and your brand. But more importantly, regardless of whether your business is doing fantastic in terms of cash flow or if you count on every invoice to keep you going, money must come in on time.

That’s why we are putting this often-overlooked problem into perspective to help you keep your business on track.

You’ll learn the following:

• What delayed payments are
• Consequences of delayed payments
• Reasons clients are late with payments
• Adapting the invoicing to the client
• Incentives and positive encouragement
• Automation and how to do it right
• Whether you should penalize clients
• The importance of open communication

Let’s dive in.

What constitutes a payment delay?

In short, a delayed payment occurs when a client, customer, or business partner fails to pay the invoice within the specified timeframe. Not trying to be Captain Obvious here, but there is more to it.

Sometimes, businesses or individuals will send out an open invoice that doesn’t have a deadline, which typically means the payment timeframe is 30 days after receiving the bill. This can vary depending on the industry or sector you’re in.

It’s crucial that you outline this detail in your terms and conditions and that the payee understands the agreement they’re signing. You want to emphasize the timeframe they have to pay the invoice and when that countdown begins.

The 30 or 60-day invoicing period can begin upon receiving the invoice, or it can begin upon the completion of a project. But if the client doesn’t know this, the payment will likely be late.

What are some possible consequences?

Financial loss

When clients fail to pay, you may need to get money upfront from invoice financing. Sure, you’ll get the money, but then the financing provider will get a substantial cut.

Source: Intrum European Payment Report 2019.

You might also need to resort to legal action. Now that can put a severe dent in your budget, and you’ll lose a client in the process.

Wasted time

Following up on delayed payments can be a big drain on your resources, and it can put your accounting and finance departments on the back foot. SMEs in the UK, for example, spend about 30% of their time chasing outstanding invoices. This is time and human power you can’t afford to waste.

Cash flow and operational issues

You need money to fuel your day-to-day operations, and that is what cash flow is all about. When clients fail to pay, that flow gets disrupted, leading us to the next point.

Halted business planning

Cash flow allows you to plan for the future. Whether you’re a freelancer or an SMB owner, business planning is essential not just for growth but sheer survival in a competitive market. How can you take your business forward if your cash flow isn’t stable?

Client churn and deteriorating relationships

Delayed payments create awkward situations, but worse, they frustrate and jeopardize our client relationships. Don’t worry; you’ll learn how to stay calm and preserve stellar client relations.

Common reasons for delayed payments

“The client doesn’t want to pay me—they’re doing this on purpose!”

Hold on, while there’s a slight chance that that might be the case, it’s far likelier that something else is at play.

Consider this:

• The money is in transit
• They can’t pay you and don’t know how to tell you that
• The client is not satisfied with the product or service
• The client is waiting for their own invoices to be paid
• The client missed or lost your invoice—yes, it happens

Okay, now that you’re finally considering the possibility that people are not trying to ghost you, here are the best practices to avoid payment delays while keeping everyone calm and happy.

1. Adapt the invoicing to the individual

Knowing your clients is half the battle, and personalization in every aspect of your client relations is the key to success. In practice, that means personalizing the invoicing process.

Be open and transparent in your communication, and talk about money first. Share your invoicing and payment requirements and ask the client what they think about it and if it works for them. Then work with them to create custom pricing models, if possible, as well as a payment structure that works best for their unique situation.

Personalization aside, you must research the client before agreeing on a collaboration. Analyze the company’s performance and research its previous providers. Try to deduce the stability of their income, which will be a telltale sign if they’ll be late with their payments.

2. Use positive encouragement

Incentives go a long way in getting people to like you, but more importantly, to pay on time or before the deadline. Early-payer rewards are also great for building long-standing relationships and bringing new clients in through positive word-of-mouth.

The best part is that there are various ways you can incentivize a client to pay early, including:

• A small discount on their next invoice
• A complimentary, one-time service add-on
• A free strategy session
• Offer gift certificates or vouchers
• Set up a point system and let them accrue points for future perks

Your incentives will only work in your favor if you have previously:

• Set up a clear and detailed agreement
• Defined a payment schedule
• Agreed on a 50% upfront payment
• Provided different payment methods
• Automated invoices and reminders

This last one brings us to the next crucial point.

3. Automate invoices and payment reminders

Automation is a big part of cash flow management and can solve many invoicing problems. One of those problems is having to chase down clients and engage in awkward conversations.

So, the next step is to automate your invoicing with a tool like Paymo and set up payment reminders. The invoices will go out on their own for recurring payments, but the reminders will allow you to incentivize early payment.

Receive payment for your invoices with PM Payments.

Set reminders to do more than just remind people to pay on time.

For example, you can send automated transactional emails to remind people that paying early unlocks one of the perks we discussed. It’s a good way to politely ask for money without coming off as pushy – you instead have the client’s best interest at heart.

4. Think twice before penalizing late payments

What about penalization? Should you punish clients for delayed payments? Well, it depends.

Penalizing clients might get you paid, but you’re inevitably chipping away at your relationship every time you do it. In fact, the first time you penalize them with a 2% late payment fee, they might start looking for a different provider.

For this reason, you need to think twice before scolding anyone. Many clients approve invoices in their accounting systems to be paid on the due date, and if they pay by card, it can take a while for credit card payments to process, which can lead to a delay. The way to implement late payment fees is to work them into your contract so that it gives clients enough time to avoid them.

In other words, you don’t want to charge them more for being late; you just want them to know you can. This will keep them content while reminding them of their obligations.

And remember that you can always send out a reminder that addresses this.

5. Nurture transparent communication

Open communication is the key to any fruitful relationship in business and life. With that in mind, the way to avoid delayed payments is to get your clients to talk to you.

Source

Let’s take cloud providers as an example. Oftentimes, customers have little idea what they’re paying for and how much of their money is going where. They just know they’re paying for cloud solutions.

To foster open communication and empower their clients, cloud providers will often provide cloud cost tools to let them analyze and break down their costs. Then, the client can discuss specific costs more openly and work with the provider to allocate resources better and manage their payments.

Regardless of the sector you’re in, you can do the same for your clients and use open communication and tools, and cost breakdowns to nurture transparency. When they know exactly what they’re paying for, they’ll be much more open to paying on time. If nothing else, it will allow them to talk to you about a possible extension and troubleshoot any possible payment issues with you ahead of time.

Over to you

You now have the essential tools and tactics to ensure you get paid on time, every time, and to keep nurturing rewarding relationships with your clients and partners. When a delayed payment does happen, which will usually be with a new client, remember this:

• Open communication will uncover possible invoicing issues early on.
• Stay positive – it’s probably just a misunderstanding, and you don’t want to come off as unpleasant if it is.
• Come up with an invoicing structure that works for the client.
• Automating your invoicing process is not an excuse for radio silence – reach out and ask if there’s anything you can do for them.
• Incentives are great, but don’t use them immediately – make sure the new client can pay on time without expecting to be rewarded for it.