5 Methods You Can Use to Reduce Late Payments
In any industry, maintaining a steady cash flow is essential to running a business. When a company receives consistently late payments, day-to-day operations and overall progress slows down. By understanding why your customers are paying late, you can take steps to create an actionable plan to reduce your number of late payments and thrive as a business.
Here are a few methods to limit late payments from your customers.
1. Digitize your invoices.
Avoid long manual processes and cut costs by electronically invoicing your customers. Moving payments to the digital world creates a better experience for you and your customers – helping you get paid faster in just one click.
2. Offer incentives for paying early.
Prompt payment discounts are a great way to avoid late payments. In addition, they allow your customers to save money and build business credit. In turn, you get paid sooner and have access to the cash needed to take care of your day-to-day business expenses.
3. Implement a strategy: use root cause analysis to understand your AR issues.
Instead of analyzing each late payment, look for areas of improvement within your entire accounts receivable system. Consider using root cause analysis: a systematic process of identifying and solving root causes of problems. There are five steps to this method.
- Gather your evidence by looking for who is involved in your AR system, the current standard procedure, any tools or systems you use, and the general work environment. Looking at the evidence first allows you to make an educated proposal later.
- Write your statement using the data and evidence you gathered. In this step, try to figure out if the problem lies within your AR system or not.
- Identify cause and effect and explore the circumstances under which they interact to find the root cause of your problem.
- Create solutions based on the causes you uncovered. A good solution is effective and implementable, has a positive effect, and does not cause other problems.
- Build reports beginning with the identified causes and ending with the implemented solutions. Reports help you keep track of your progress and the effectiveness of the solutions.
Root cause analysis will help you solve your late payments problem because it attacks the issue at its core. By improving your AR system, you will offer your customers a more streamlined payment process and generate growth for your own business.
4. Automate your invoicing process.
An automated invoicing process eliminates the tedious, manual task of sending out every single invoice, following up with clients, and keeping track of payments. Instead, cloud-based software handles your invoices end-to-end. In fact, companies using automated workflows see a 90% improvement in invoice processing time.
5. Communicate well with your customers.
You can avoid late payments by keeping regular contact with your customers, sending prompt invoices for goods/services provided, and even sending pre-invoice reminders. Sometimes, customers may be prone to falling behind schedule, so all it takes is a simple check-in every now and then. By developing a good relationship with your customers — and doing so by providing them with a reliable payment process — you will increase client satisfaction and start getting paid faster.
Invest in the Payments Process
The payment process depends on two parties: you and your customer. By strengthening your relationships, offering streamlined services, and understanding your customer and current AR system, you can lower the number of late payments you receive from your customers.
If you’re interested in learning more about using root cause analysis to solve the issue of late payments, check out our newest eBook on the topic. Learn how you can turn your AR system into your greatest asset.