On-time payments are essential for every business. But late payments are a consistent and widespread problem that most businesses face at some point. Data shows that almost 93% of businesses globally, experience late payments. So, clearly, it is a problem. But what causes late payments, and what are the ways to prevent and manage them? Let’s find out in this blog.
What Causes Late Payments
Late payments are a big challenge for businesses of all sizes. It is one of the leading causes of the failure of many new and small and mid-sized enterprises. One out of four SMEs in Europe go bankrupt because of late payments. Payment delays can happen due to various reasons. Insufficient funds in the account, forgetting the payment date, invoice disputes, market conditions, manual credit, and billing processes – the causes for late payments can be challenging and sometimes beyond your control. However, by applying specific proactive measures you can address this issue and prevent it from becoming a regular event.
How to Avoid Late Payments
There are steps you can take to prevent and manage late payments and enable your business to maintain a healthy cash flow. Here’s a look at some of them.
1. Set Clear Payment Terms
Setting clear payment terms and a standard time period for business payments is recommended. Businesses that set clear payment terms, including discounts for early payments and interests and debt recovery costs for late payments, stand a higher chance of avoiding late payments. Letting clients know these terms in advance also makes it easier for them to pay you on time. State invoice policies in clear terms and let your client know about the payment schedule, payment deadlines, late fees, etc. Get a written confirmation and refer to these policies in case of any future payment issues.
2. Automate Your Accounts
Automating your accounts receivable and accounts payable simplifies many of the financial operations and lets you easily navigate complex payment processes. You can speed up the payment process by sending e-invoices, and automated reminders. You can also eliminate manual errors and simplify all billing processes to help your clients pay you more easily. Automating your operations also gives the finance team more visibility and real-time insights and helps them successfully track invoices. This lets you take proactive measures in case of any error and also makes it easier to chase an invoice. You can call or send an e-mail to the client and ensure they clear it before it’s overdue.
Read more: How Payment Automation Transforms your Business Payments
3. Schedule Automatic Reminders
One of the easiest ways to prevent late payments is to schedule automatic reminders. This gives you a heads-up on all incoming payments and lets you send a friendly, personalized reminder to let your clients know about a due payment. Automatic reminders make it easy to deal with multiple clients and also help build a trusted relationship with your clients. But it would help if you are consistent as many times clients are too busy and can forget a payment date despite repeated reminders. Automated reminders are good as they can be sent at a certain interval, making it easier to proactively follow a client without seeming annoying.
4. Automate your Debt Collection
McKinsey’s research shows that many businesses still pursue traditional debt collection methods, such as phone calls. This leads to a lot of repetitive work and delays, which can be avoided, if merchants automate their debt collection. Many customers prefer a digital approach when it comes to dunning. Thus, automating the process improves your chances of collecting payments on time, with lesser friction. Data shows that merchants who send mobile reminders and push notifications increase their likelihood of getting paid by 44%. Automating your debt collection process also gives you real-time access to payment data, which improves your cash flow forecasting and the availability of working capital.
Read more: Why E-commerce Merchants Should Automate their Debt Collection
5. Offer Multiple Payment Methods
There are different payment options for business transactions. People today prefer quick and convenient payment options. So, it helps if, as a business, you can offer more relevant payment options to reduce friction and increase convenience for both parties. Multiple payment options create a hassle-free payment experience and make it easier for the client to pay on time. It supports a great UX, boosts customer loyalty, and also helps to minimize processing costs.
How Can Novalnet Help
The best way to avert late payments is to prevent them from occurring in the first place. But in case, you still have to deal with it, we can help you track and identify the causes and help you find ways to prevent them in the future. As a trusted partner for Europe’s leading brands, we can help simplify the payment experience you offer as a brand. From accepting payments in 125+ currencies in 150+ country-specific payment methods to our instant payment plug-ins and AI-based risk management tools, we have the resources to get your payments up and running in no time.
Reach out to us today to know about how we can help your business.
Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.