Every company is anxious to find effective ways to encourage customers to pay on time. Numerous accounts receivables can be difficult for a small to medium enterprise in terms of working capital. Accounts receivables reduce the company’s liquidity. A business can resort to various ways to deal with customers who are delinquent when it comes to paying for past due accounts.
Charging Late Fees
One way to resolve the problem of late payments is to charge late fees. Charging late fees is a practice that has been once disregarded but now very useful in terms of consumer collections. The main advantage of imposing late fees is that customers are forced to pay on time. Customers tend to change their behaviour when they know they will have to pay a penalty for being late. Late fees also serve as additional income for the company. Lost investment income associated with late payments may be at least offset in partial.
On the other hand, there are drawbacks to charging late fees. The company will be exposed to the risk of offending their customers. Once a customer is offended by the late fee, credit experts say that the same customer can turn into an angry salesperson with bad things to say about the company. It is up to the company to decide whether to impose late fees or not.
Building Good Customer Relationships
Owners and managers of a business should make the effort of getting to know their customers better. By building a relationship with customers, it will make it more difficult for them to delay their payments especially if they know that the company has limited working capital. Customers will not risk a good business relationship by consistently delaying their payments.
It will also be easier for companies to collect from customers because payment reminders can be done in an informal way. Increase personal customer visits whenever possible. Meeting customers frequently will motivate them to pay on time to someone they know.
When a few invoices have become past due for several days, send friendly notices to customers. Consider making personal visits to customers with past due accounts. Inquire about the cause for delay and arrange a payment scheme when possible. This will encourage those customers to pay in increments. Both parties will benefit from this arrangement.
Applying Credit Holds
If a company discovers one or a few customers are consistently making late payments, it may be time for management to consider putting those customers’ accounts on hold. This means, they cannot avail of credit on their succeeding transactions unless their previous balance is paid. A credit hold freezes the customer’s credit. Customers with outstanding balances can only pay in cash if they want to purchase something from the company.
Despite the best efforts of the company, there are some customers who simply disappear or will not pay. For accounts receivables that are past due for over 90 days, the company should consider hiring the services of a collection agency. Collection agencies have their own methods of collecting. Compile a list of reputable and affordable collection agencies and make enquiries.