A timely collection of cash is extremely important to maintain the cash flow. If you fail to do so then your business might crumble. It probably won’t matter much if a small invoice goes unpaid. But just imagine how would it turn out if this small number keeps escalating and starts to take a toll on your daily operations.
If this continues then chances are you won’t be able to pay the suppliers as well as your employees. So, it becomes essential to keep a check on all your unpaid invoices and get them sorted at the earliest.
But what if you are still struggling with late payment issues and don’t know a way out. Don’t worry! We got you covered with different ways to deal with late payments. Here’s the complete guide on a step-by-step late payment solution.
1. Identify and Estimate the problem
First, you need to carry out an in-depth analysis of the problem in order to understand the figures. Calculate your total outstanding amount which is remaining and how much money is overdue. Considering an average case, businesses have 30% of their payments running late so you can assess the percentage accordingly.
Don’t limit yourself to revenue calculations and assess the time and cost associated with the collection process, the sales opportunities you have missed, and funding cost shortages that affected your operations. Everything needs to be taken into account.
2. Understand the root cause of late payments
There can be several reasons why your customers fail to make timely payments. Try to know the actual reason behind the overdue bills. This requires clear communication between both parties.
They probably have lost the bill or track of the last date, maybe there are some unexpected expenses that they are facing, payment instructions may not be clear to them, etc. Whatever the root cause is, try to dig it out, and then only you can move forward with the payment settlement.
If required you can take the help of platforms like online dispute resolution for businesses. If you don’t have a proper payment system in place and depend on manual operations then it’s time to change it. Organize everything in a systematic way to smooth out the functioning.
3. Design and implement the solution
Once the analysis is done, it is important for SMEs to crunch out some solutions based on the root cause. While searching for solutions certain factors need to be considered.
- The amount of effort it will take to implement the solution.
- Assess the time that the solution will take to process results.
- The kind of improvement the business will have. For example increase in working capital etc.
- Can this solution resolve the urgent pain point of your business?
There can be numerous solutions for the late payment problem but for starters, quick win solutions are best to go with as they can fix the problem the earliest. Also, government initiatives like No Defaulters can help resolve late payments.
4. Regularly review your systems
After implementing the solutions as per their priority status you should be working on a feedback mechanism. See where the solution is working fine and where not, find the gaps and try to work on resolving them. It’s a constant problem and cannot be fully eradicated. But you can try to lubricate the payment settlement process to achieve maximum success.
In a business, you will come across many difficult customers. Therefore, it becomes essential for you to learn to deal with CreditQ and develop the required kind of attitude.