While occasional late payments may not impact your business significantly, frequent occurrences can change the situation considerably.
Late payments can have serious implications for managed services providers (MSPs), including cash flow issues, operational disruptions, and difficulties in scaling. Understanding how to prevent late payments is crucial to maintaining the health and growth of your business.
Late payments affect your cash flow and operations
Use these strategies to handle late payments and protect your cash flow:
Watch this 4-min video as an alternative to reading the article:
1. Create Payment Terms and Definitions
Establish payment terms as soon as you set up your business. These terms explain when and how a customer pays you. They also describe how much customers owe and what will happen if they choose not to pay you on time.
In addition to payment terms, share payment definitions with customers. Make it easy for customers to understand your MSP billing process. Otherwise, if there are gray areas, customers could take advantage of potential discrepancies.
Address customers' concerns and questions about your payment terms and definitions. If a customer is uncertain about what something means relating to your billing, give them the opportunity to speak with you or a member of your team about it.
When you speak with a customer about billing, document the conversation. Develop a system where you and other team members can share notes about customer communications. This gives you proof that confirms a customer understands what your billing entails.
Further reading MSP Accounting and Finance Best Practices
2. Send Billing Reminders and Warnings
Tell customers when their bills are coming due. Send your customer a friendly reminder of their due date and options that they can use to pay their balance. It also helps to accept payments over the phone and online.
In your billing reminders, give your customers multiple options for paying their bill. Customers can't claim they didn't know how to pay their bill if you explain how to do so in your reminders.
If a customer is late, let them know. In your notification, remind the customer of the due date. Once again, share methods that they can use to pay their balance. Explain that they could receive late fees and other penalties.
Follow up with customers via phone calls, emails, letters, and other communications. If a customer continues to choose not to pay, put a hold on any services you provide them and get a collections agency involved. At this point, the agency can pursue a payment on your behalf.
3. Avoid Late Payments in the First Place
Offer automatic billing. Customers can use a bank account or credit or debit card to pay their bill on the same date each month. You can even give customers the flexibility to choose their billing date.
Reward customers who choose to make their payments on time. For example, offer a discount to customers if they set up recurring billing. By incentivizing on-time payments, customers are more likely than ever before to follow through on them.
Get customer feedback regarding your billing process. Surveys and questionnaires let you find out what customers have to say about your billing. If your billing is slowing you down, revamp it accordingly. From here, continue to look for ways to streamline your billing and make sure it's simple for customers to pay you on time.
Further reading Is Your Billing Process Slowing You Down?
Manage Your Billing and Operations
You take on new customers and expect great relationships from the get-go. Unfortunately, there are no guarantees that your customers will make on-time payments. Alternatively, you can plan ahead for past-due customers. When you do, you can keep your business afloat financially without compromising your operations.
Be proactive with your company's billing and operations. Instead of letting a customer get past due, reach out to them. Give your customers as many opportunities as you can to pay their bills, too. If you do these things and many others, your business will thrive. Plus, you'll be well-equipped to maintain positive relationships with your clients.
