Ever tried to collect a debt from a friend? It can be a tricky endeavor. You want to get the money you’re owed without jeopardizing the long-term relationship.
The same dynamic comes into play when collecting late invoices from clients. You need to get paid. But, at the same time, you also need to stay diplomatic about your approach, so you can keep the client going forward.
It’s important to make your customers feel respected at every step of the process, even when they fall behind in their payments. One study found that 70% of purchases were based on whether a customer felt sufficiently valued. To protect future revenue from your current clients, make sure they continue to feel valued, even as you ensure that they fulfill their previous obligations.
How to Maintain a Relationship With Late Paying Clients
You want to stay optimistic. Trust represents an important component in any business relationship. As such, you assume that every client will pay each of their invoices on time.
However, the reality often diverges from this sunny expectation. As the old saying goes: expect the best, prepare for the worst. Here are a few steps to keep in mind:
Expect late payments: Don’t get caught without a plan. Assume that some portion of your invoices will end up past due.
Have a collections structure: Put policies in place before a delinquency happens. By strategizing ahead of time, you won’t have to improvise responses in a live situation.
Create incentives for on-time payments: Late fees and discounts for early payment helps increase the chances that you’ll get paid on time. Policies like these can reduce the need for collections.
Maintain emergency cash: Don’t let a late payment jeopardize your overall financial situation. Structure your financing so you have a safety net, even if large clients fall behind in delivering what they owe.
As you attempt to collect on an invoice, maintain a polite and professional tone. Most delinquencies are minor and occasional — you likely still have a long, profitable partnership ahead with the customer. No need to damage a healthy relationship by becoming needlessly aggressive.
Also, as you converse with your customers, realize that some invoices might never get paid. Clients might go out of business or simply stop responding to your attempts at communication. It’s a frustrating but not uncommon aspect of collections.
When this happens, continue to handle the situation professionally. Depending on the circumstances, you might feel a sense at personal betrayal at getting ghosted by a delinquent customer. However, you won’t help your cause by becoming belligerent.
Instead, understand your legal rights and pursue them as aggressively as seems prudent. And, when necessary, realize that you might just have to write off the occasional invoice and move on to other business.
Listen to Your Customers
The collections conversation should go in both directions. Yes, you want to pressure (gently at first) your late clients to get current with their invoices. But you also want to learn about their circumstances and see if there are ways you can help.
In some cases, you might be able to set up a payment plan. In others, there might be room to work out a more innovative solution (a barter deal, for instance).
You can also gain general market intelligence from the talks. If a late customer blames deteriorating market conditions, you might need to prepare for a spike in delinquencies. The more you know, the better you can prepare a response.
Have Flexible Financing in Place
Late payments can have a ripple effect in your organization. In certain circumstances, these can escalate to a tidal wave. An unfortunate delinquency at the wrong time could have you sweating your next payroll or facing other scary consequences.
As we mentioned before, you need the financial flexibility to counteract these situations. Holding emergency cash represents the first step. From there, it also helps to have other financing options, like a line of credit or an invoice factoring agreement.
To get the best financing program in place, it helps to have strong partners. A top funding firm, like Frontline Funding, can protect your business against cash crunches.
Contact Frontline Funding today to discover the best options for you.