How Small Businesses Can Ease the Pain of Late Payments

As a business owner, you may have developed many plans in the pipeline for your company’s growth. However, one late payment may be enough to hinder your progress. Late payments are not just a nuisance, they can also severely affect your company’s cash flow.

Singapore is no stranger to the issue of late payment. In fact, the coronavirus pandemic has further aggravated the problem. According to Atradius, 52% of Singapore businesses experience payment delays.

Fortunately, there are ways you can adopt to cushion the pain of dealing with late payments. Here are ten tips:

1. Draft a Solid Contract With Your Client

Before starting any work, make it a rule to draft a solid contract that’s signed by both parties. The contract outlines what your client expects from you, and what you will deliver to the client, possibly with payment terms, details for delivery and dates for milestones. With everything stated clearly in writing, no one can argue about the agreed terms.

Even if the client may be someone you have previously worked with, and a good payment record, a contract can help safeguard your interests in the situation where your client does not pay within the stipulated time as stated in the contract. When chasing bad debts, you will also have a contract to fall back on.

2. Negotiate Fair Payment Terms in Your Contract

Atradius revealed that 47% of businesses do not set payment terms according to their company standards. However, if accepting longer payment terms could be detrimental to your company’s growth, consider declining the job and taking up other clients that are aligned with your payment terms instead.

While it may be tempting to accept every job that comes your way, accepting payment terms that are longer than what you are comfortable with could be unhealthy in the long run – the client may repeatedly ask for longer payment terms, and your business could suffer in time to come.

Some clients assume that you will accede to their demands and deliver the work for them. However, you have every right to reject, and set your own payment terms or negotiate till you come to an agreement that both parties agree on.

3. State Payment Terms Clearly

Once you’re happy with the payment terms that you’ve negotiated, be sure to add a clear liner in your invoices or bills, detailing the payment terms (due in 30 days or 45 days), as well as the consequences of late payment. Be concise in your wording by putting an exact due date rather than phrases such as "due in a month". You can also add in a liner about your late payment policy to inform your clients that you will impose a late fee for invoices paid past their due date, which could hopefully serve as a deterrent for clients to pay up late.

4. Send Invoices on Time and Follow Up

To make sure that your clients pay on time, you will first have to play your part. Make it a point to issue your invoices promptly so you can keep tabs on when the payment timeframe is up, and when to send your follow-up reminder emails if necessary.

If the stipulated time-frame has passed, don't be afraid to follow up with your clients. Sometimes, late payment may not be intentional – it could simply be due to an oversight because of your client’s busy schedule. Send them a personal message and attach the invoice again, nudging them gently to pay up. For clients who are known to pay late, you can set up email reminders when drafting your invoice.

5. Evaluate Clients Who Have Paid You Late Previously

Know of that client who continously pays you late? This could be a sign that something has to be done on your end.

If the issue of late payment persists, it casts doubts on your client's integrity level. In such cases, think about whether you should still continue cooperating with this organisation. If there is any ongoing work for that client, cease further work until they pay off the outstanding debt.

6. Digitise the Payment Process

In this digital era, invoicing can be effortless. Recurring tasks are often the most time consuming, but you can easily save yourself the time by automating these processes through ERP implementation. Automating your billing method will help to streamline the account receivable/payable functions by providing automatic reminders to clients for recurring invoices.

Additionally, automation software extracts invoice data and inputs this data seamlessly into your enterprise resource planning (ERP) to coordinate the generation of cash flow for your business. Furthermore, Invoice automation eliminates the need for manual data entry and labour, providing efficiency and accuracy.

7. Adhere to a Regular Payment Schedule

Sticking to a regular payment schedule can allow your clients to have a heads-up on when they should be expecting your invoice. If your client expects your invoice at the start of the month, then you should invoice on those dates. By standardising the invoicing process, you can eliminate the confusion on payment due date and gradually build a healthy payment process.

8. Implement an Upfront Deposit Rule

Depending on the scale of your project, you could consider asking for an upfront deposit of 50 per cent as a sign of good faith – especially if you are dealing with a new client.

Alternatively, you could also consider asking for staggered payment, to ensure that you won’t be completing the entire project and having to risk not receiving remuneration in the end. Whichever strategy you choose to adopt, remember to state this clearly in your payment policy.

9. Maintain a Peer Network To Learn Helpful Tips

While this strategy is not a direct way of helping you avoid late payments, you’d be able to pick up helpful tips and insight from small business networks or freelancers. From Facebook, LinkedIn, Slack, Twitter, to in-person meetup groups, these resources can help you learn how to better manage your clients and take control of your cash flow.

10. Keep a Paper Trail

Documentation could be key to recovering your outstanding payments. In a post-COVID world where everything is handled digitally, keeping a paper trail is of paramount importance. From your contract of sale, sales agreements, terms and conditions, to invoices, you can digitise these paperwork and save them in a safe place.

Take Control of Your Cash Flow

Cash flow is always king when it comes to running a business.