Having some of your customers pay late can cause you a lot of “hand-wringing”. You can’t pay your own bills on time. You ask yourself should you ask for a line of credit from a bank in order to pay your own bills. It is a constant struggle for small businesses to get paid on time. In fact, 64% of small businesses are paid late.
What are you going to do to alleviate this problem? Charging a late fee could help late payers get up to date. Are you reluctant to do that for fear of creating ill will with your customers?
But not charging a late fee would be a mistake, especially for chronic late payers. Businesses have to realize that they need good paying customers if they want to make money. Remember my earlier post, on January 13, 2016, about Sam Walton saying “if you want to make money collect on every invoice”. Also, you could be financing your customer’s business to the tune of 36% a year. Why do this, you’re not his partner!
If you decide to charge a late fee you should have a policy in place or even a contract with the client which would include your late-fee policy. You can’t decide to charge a late-fee after the fact if it wasn’t in your initial agreement. Your invoice should include a statement at the bottom of the page which indicates that late payments will incur a charge of 1.5% per month, for example.
Even if you don’t charge it, it can work well as an incentive to get people to pay. Upon receiving an invoice which includes a late fee your customer may give you a call to settle the bill, or even negotiate the rate of late-fee charged downward in a new contract in lieu of other charges that may arise during the project.
Small businesses must be clear on their policies up front and implement a communication strategy to collect so they’re in contact with customers promptly if they are late on payment. Even is they are late one day, you should be on the phone with them to tell them that you haven’t received payment as yet and when can you expect to receive it. You can then gauge the customer’s response for sincerity when you do reach out.