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How to handle late payers in your business (without ruining your relationships!)

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One of our key suppliers was upset because they have a client who they like but who is consistently paying late and doesn’t like to be reminded.

This is a common problem so I thought I’d put my tips into this post so others can benefit.

Personally we like to pay our suppliers on time – it’s good karma and we like to support other small businesses.

We know it’s hard to confront clients and have these difficult conversations – especially if you’re also very friendly with them, which is generally always the case in a small business.

However, you need to take action, because late payment is terrible business practice.  If you are confident that your service is great and your client would no doubt be lost without you, buy them lunch and say “I really need you to pay on time – because if you don’t pay me, I can’t pay my staff”

Here are some questions to ask yourself to help you approach this and reduce the likelihood of this common problem showing up again:

Are they a keeper?

Last week we were talking with a different key supplier who attended our board meeting.  They explained they have done an exercise where they rated their clients on several metrics – time spent per £ of revenue, how profitable they are, how far they are away, etc. One of them is “Do we like them?”.   The concept is that anyone who has a certain amount of “fails” shouldn’t be a client.    They said it was a brutal exercise but also they we didn’t fail the test (thankfully!).

Are they lucid/solvent enough to be your client?

If your client is a limited company, you can go to Company’s House and download the last figures for the company. If its small it won’t say much, but you can see if they have much cash in the bank for example.  I’m aware of a small independent school who put their fees up and always seemed to be hard up, but Companies House indicates they have over £500,000 in cash in their balance sheet!  That would indicate they had no reason to be bad payers, but a poor balance sheet might imply the opposite.

Can you suggest ways to help?

You can always suggest spreading payments over a few months or giving your client more leeway on payment terms if you know they may be struggling. It’s best to be open about this, as we’re all in business and know what it’s like to sometimes have issues with cash flow. Many accounts systems, including Xero, Sage, Freshbooks and Quickbooks, allows people to pay via PayPal or Stripe on a credit card (albeit sometimes the fee is eye-watering at approx 5%)

Can you implement and sometimes
enforce a late payment penalty for all clients?

We recommend that all your terms are updated to reflect penalties for late payment. So, for example, in future if any client pays after the due date it’s X late payment fee, and 10 days later it’s £Y late payment fee.

Hopefully you can put these into practice and stop this being a common stress factor for you – and then you’ll need to tackle other problems instead!