how to handle late payments

During the past year, the number of customers who have delayed payment or avoided making any payment due to small businesses has increased.

As you can guess, their reason has been the pandemic.

But this has been a big problem for many small businesses in Nigeria, even before the Covid-19 pandemic began.

For decades, many businesses struggled, begged, less money lost customers and became bankrupt because customers did not pay on time or at all for their goods and services.



The effect of a single late payment can critically impact the business depending on the state of their cash flow, the size of the payment etc.

Late payment means that the business owner would lack enough funds to pay suppliers, pay its employees, or even continue to run its operations.

Especially if the late payment is from a customer that accounts for a significant chunk of the business’s revenue, then the effect can be more threatening.

Late payment means that a good portion of the business owner’s time and resources that could be channelled into more productive uses are used to chase customers to pay the sum they owe.

In this article, we will show you how you can handle late payments in your small business without alienating your customers.

Five Ways To Prevent Late Payments

The best way to handle late payments is to prevent them.

There are a few tips you can apply to your small business to help prevent or reduce cases of late payment.

1. Know Your Customer’s Credit Worthiness

2. Be Up Front About Your Payment Process

3. Reward Early Payments & Deter Late Payments

4. Mandate a fraction of your fee upfront.

5. Make it convenient for customers to pay


1. Know Your Customer’s Credit Worthiness

Know your customer.

Many small businesses skip doing basic research about new customers.

This single step would have saved many businesses money and stress, but they skip it and onboard bad customers that have a bad history of late payments and even non-payments.

Basic research, like talking to other suppliers to the customer or checking their creditworthiness, can reveal if the customer you want to send supplies to can pay for your goods or services.

2. Be Upfront About Your Payment Process

Don’t wait until you’ve done the job or sent your goods before informing your clients about your payment process.

Be upfront about it.

If you have a payment deadline of 14 or 30 days, make sure you inform your customers.

If you give discounts or penalties for early or late payments respectively, be sure to make that clear in your contract before you provide a service or supply a product.

Whatever your payment terms are, make sure your state It in a language your customers would understand before supplying goods or services.

3. Reward Early Payments & Deter Late Payments

Reward the behaviour you want to encourage and penalize the one you want to discourage.

Institute a reward system that encourages your customers to pay you early. Offer a discount or any other incentive your customers would value to encourage them to pay you very early.

Likewise, create a fee for those customers who pay after the due date.

It would serve to help them prioritize paying you on time, even if to avoid paying the extra charge.

It is however to exercise some caution in using a deterrent strategy, like a late payment fee.

Not only that, but it could cause you to lose some customers if you apply it generally, without understanding their specific reasons for paying you late.

4. Require Payment in Advance

Small businesses can reduce the burden of late payment if a fraction of the total fee has already been paid in advance.

You can ask clients to pay 25 – 50% of the order total before you start working on their request.

Some businesses, even go a bit further and ask for more payment to be made when two-third of the total work is done.

This would help reduce the cash flow risk the small business incurs when the final sum is paid late.

Of course, the type of advance you can ask a client for will vary depending on your industry.

So, do some research and apply what works.

5. Make it convenient for customers to pay

Give no room for excuses.

Make it super convenient for your customers to pay you.

Be ready to provide all the necessary information on time to avoid confusion later on.

Use payment channels that your customers are familiar with and ensure you follow up when they face any payment challenges.

How To Deal With A Recurring Late Paying Customer

It is unfortunate, but it is true. But many clients are notorious for making late payments.

No matter what you do, how much you follow up with them, they would pay you whenever it is convenient for them, regardless of how much it may hurt you.

So, how do you deal with this kind of clients?

1. Try To Understand Their Challenges

The first step ideally is to determine the state of the customer. So you can do a credit check through the credit bureau, talk to other businesses they buy from, etc.

Then, armed with this information, you can talk to them and listen to their reasons for the persistent late payments.

Also, inform them how their activities are impacting your business.

After the talk, you can determine your next step.

2. Consider Cutting Them Off

For many of such customers, the next step is to write their debt off and cut them off.

This is a very painful decision.

And can hurt your business.

But it has its advantages too.

Every situation is different, so evaluate accordingly.

How to Protect Your Business From The Effects of Late Payments

Have A Cash Reserve

The sad truth is that no matter what you do, you cannot curb late payments.

The tips and systems we’ve discussed above may help reduce them, but they may come up from time to time.

To avoid their effects on your cash flow and business operations, you should get a cash reserve.

One you can draw from when your small business needs the cash for the smooth running of your business.


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