Late payments cost small and mid-sized firms $3 trillion a year: study

Late payments cost small and mid-sized businesses as much as $3 trillion annually, according to Atlanta-based Sage.

That translates to one in 10 invoices  not paid on time, so taking steps to correct this lag is a good way for companies to start the new year. 

“Small businesses need to focus on their accounts receivable, because late payments can cripple their business,” says Michelle Dunn of Plymouth, N.H.,  author of the "Ultimate Credit & Collections Handbook" (Entrepreneur Press; $29.95).

 The ripple effects of late payments can include trouble  paying staff and suppliers and delayed investment efforts, according Sage, which offers business management solutions and automated billing software.

To avoid such problems, businesses should be proactive in trying to get paid.

One way to do that  may be to offer incentives like a discount on early payments, says Dunn.  You can even send an annual summary outlining how much  customers would have saved if they had taken advantage of the early-payer discount all year, she says.

Offering multiple forms of payment also might help avoid tardiness, she says, such as, say, an option to  use a secure payment page on your website.  This helps customers avoid the hassle of writing and mailing checks.

Automated reminders  that include the link to pay is another route to take.

Certain customers may require you to keep more on top of them than others, especially if they’re giving certain warning signs.

One red flag is the customer's establishing a “new procedure” on making payments, says Woodbury collection attorney Don Hochler, essentially changing the terms in some way from what was agreed upon.

Another sign might be the customer's placing a product order much larger  than prior orders or not fitting for the time of year, says Hochler. This could signal  an aim to load up now because  he can’t pay down the line.

 And when the accounts payable person or principal doesn’t respond to calls or emails, says Hochler, you may need to consider  engaging a collection agency or attorney.

This could result in losing the customer, but chances in this scenario are they wouldn’t be a long-term viable customer anyway.

 Even if you're hesitant to pursue unpaid debt for fear of hurting the relationship with the client,  late payments can’t just be ignored because they can  erode cash flow and profitability over time, says Nicole Hardin, director of product management at Sage.

“Establishing clear payment terms early and getting into a rhythm with customers can help build better relationships from the start and prevent tougher conversations down the line,” she says.

She also advises businesses to take advantage of digital payment methods such as direct debit and e-invoicing to automate payments. This makes it simpler for customers to pay, but also enables businesses to automate discounts for early payments and penalties for late payments, which can eliminate difficult conversations and incentivize customers to pay early or on time.

Beyond that, when possible try establishing a rapport with your customers, says Richard Klein, president of RHK Recovery Group, a receivables management and debt collection agency in Plainview.

“Salespeople need to maintain a relationship with whoever is paying the bills for the company,” he says. They can even pop in and say hello now and again, he says.

If the customer’s late on the payment, you might send them an email saying, ‘Hey I’m going to be in the area today and have the attached invoice that’s due…please have a check prepared for me,’ says Klein.

“There’s a way to do it tactfully,” he says.