In the business and finance world, credit control is paramount. For the uninitiated, this refers to the practice of extending credit only to customers who are capable of paying for products or services being sold. From the definition alone, businesses need to set robust measures so that customers will always pay on time and avoid getting behind on their financial obligations.
The problem is that late payments are common among many customers. In fact, a recent report conducted by Bacs Payment Schemes Limited revealed that customers regularly pay late to 45 percent of SMEs. Also, 12 percent are struggling to pay business bills, and around 12 percent are battling to pay their workforce on time.
How to Prevent Delinquent Payments
The question is: how do you deal with late payers? Here’s our credit control guide on how to prevent delinquent payments:
1- Set stringent qualifications for your credit application
If your SME is selling various goods or services, it’s best to set eligibility criteria to approve only those who are able to pay in the long run. Before customers sign up for your products or avail of your services, have them submit an application, check their credit standing, employment status, monthly income, business, and tax status, among others. You should also have a thorough review and assessment and approve only those who will manage to pay every month. Once approved, make sure to discuss and be clear with them regarding your terms and conditions.
2- Consistently communicate and promptly take actions
When it comes to asking for monthly payments, communication is always the key. It doesn’t necessarily mean that calling your customers to ask for payments is the only method. The best way to do so is to issue a well-drafted invoice ahead of time so that your customers will be reminded. Likewise, remember to include all the important details in that draft, such as the total amount due, the breakdown of items, the due date, grace period, payment options, and other relevant payment information. If customers haven’t made a payment yet, then you need to take prompt action before it’s too late.
3- Follow up with customers on late payments
In line with the previous point, you have to follow up with your customers immediately regarding their late payments. The chances are that they have forgotten, used incorrect banking information, or are struggling financially. If you promptly get in touch with them, you can have the late payments quickly rectified.
4- Set payment arrangements for those in a financial situation
No matter how strict your credit application is, it’s inevitable for customers to get into a financial situation. It’s possible that they may have gotten sick or have earned a small income in a particular month. In such situations, it helps to know their financial circumstances so that you can offer some help, such as having some payment arrangements. That way, your customers will catch up and be financially back on track.
5- Track and review payment records of each customer
It’s a good idea to track and review your customers’ payment records regularly. While you’re at it, offer those with good records some discounts. On the other hand, reach out to those delinquent payers and offer some help to see how frequent late payments can be addressed.
At this point, you now know how to prevent delinquent payments among your customers for your small or medium-sized business. All it takes is to set stringent qualifications, communicate and take actions, follow up with customers, set payment arrangements, and track and review payment records. With all these in place, you’ll gain credit control, ensuring that your much-valued customers will always pay on time!
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