Would you stop supplying a late paying customer?

15/03/2022

It can seem illogical to voluntarily stop accepting orders from a customer, particularly larger businesses. But when they’re continually stretching payment terms and putting your business at risk, is a late paying customer really worth retaining?

Barclays’ research has shown that, for those who have been on the receiving end of poor payment practices, the majority (80%) said they would refuse a job with a potential customer if they were known for paying late.

Whilst this is encouraging to see, from our experience many businesses do not feel like they can do this in practice.

So how else can businesses encourage customers who rarely pay on time to pay faster?

1. Talk to them

Never underestimate the power of talking to your customers when it comes to getting paid. Building a rapport with your customers rather than having a transactional relationship won’t just improve your chances of getting paid on time, it could also encourage them to purchase more goods and services from your business in the future. Make regular courtesy calls to your customer throughout the credit period to continue building that relationship and ensure that your invoices always stay front of mind.

Discover what to cover in a courtesy call here

2. Offer early settlement discounts

One of the easiest ways to encourage customers who rarely pay on time to pay earlier is to incentivise it. Early settlement discounts provide an incentive for customers to pay invoices promptly, ensuring you get the money you’re owed within terms. Whilst this means you would get paid slightly less, in many cases it can be more beneficial to your business to be paid the majority of an invoice’s value early than receiving the full amount outside of terms.

Learn how early settlement discounts can help your business

3. Compile a stop list

Rather than categorically refusing to accept any further orders from a particular customer, it can help to temporarily place them on a ‘stop list’ or a ‘watch list’. Businesses on the stop list should be informed and not supplied with any further goods or services until all outstanding invoices have been settled at the very least, while those on the watch list should no longer be offered credit terms without an up-front payment or deposit. You could even ask for the full amount to be paid when placing the order.

Here are four reasons why implementing a stop list makes perfect business sense

4. Charge interest

Did you know that businesses are legally entitled to charge interest on late payments at a rate of 8% plus the Bank of England base rate? Additionally, you can claim debt collection costs of between £40 and £100, depending on the invoice’s value. Many businesses are reluctant to apply this charge as they fear the customer will take their business elsewhere, but, at the very least, reminding the customer of your right and including it in your Terms & Conditions of sale can encourage customers to prioritise your invoices ahead of others.

Find out how much you could claim using our calculator here

5. Review your internal processes

If you are regularly being paid late, it’s vital that you review your internal processes to identify any potential issues that could be contributing and consider where you can make improvements to speed up collection times. Are your invoices being sent promptly? Are you speaking with your customers regularly? Do you offer enough payment methods?

This guide covers 101 ways you could improve your credit management

Where do you stand on this? Have you ever stopped supplying a customer due to their payment habits? Please share your views in the comments below.