Seven ways to keep your late-paying customers in check

Customers – we all have them and they are what keep us in business. But what is the risk that your customer could put you out of business?

We are talking about your debtors. If you have a lot of account customers then it is likely that you have some slow payers or some customers who you need to actively manage to ensure that they pay you.

Cashflow problems commonly happen when a major customer fails, causing a large bad debt, or simply from having a lot of slow-paying customers.

Profitable or not – if you run out of cash you are out of business.

Here are seven ways to keep your debtors under control:

1. When you open a customer account set a credit limit – you need to decide how much credit to extend to any customer. Do not give them an open-ended account.

   You need to decide what level of risk exposure is acceptable on a customer by customer basis. Irrespective of the trade terms you extend to them, once they hit their limit, no more supply until a payment is made

2. Ensure that all new account customers complete an account application form.

   Get details on them, including trade references, and ask the owners or directors to guarantee the account. If they want free credit they should be able to back it up.

3. Have clear trade terms. Irrespective of whether they are seven, 14 or 30 days.

   Once you set them police them.

4. Issue your invoices immediately on supply of your goods or services. Don’t wait until the end of the week or end of the month, get your invoices into your customer’s payment system as quickly as possible.

   Some businesses, particularly larger ones, have payment cycles. An extra day or two could mean an extra month to get paid.

5. Know the person in your customer’s organisation who can authorise and make the payment to you.

   There may be times where you need to cut through the bureaucracy and get to the decision-maker. Have their contact details on your system.

6. As soon as an account goes overdue follow it up. Too many businesses wait until an account gets to 60 or 90 days before they actively follow up.

   The best way to break the 90-day cycle is to never allow an account to get there in the first place.

7. Where possible have a dedicated person to follow up outstanding accounts. Owners and sales people sometimes are not great at this.

   They are too worried about losing the business or offending the customer. Give the job to someone else if you can.

   A good balance between understanding the importance of customers, together with a level of mongrel should mean they will not let go until the account is resolved.

 Like everything else with your business, you need a strong system to manage customer accounts. Get it right and you will limit the risk to your business.

Greg Hayes is a director of Hayes Knight and specialises in taxation & business planning advice