How do you make sure late payments don't affect cash flow?

Subscription Billing Autonomous Invoicing

How do you make sure late payments don't affect cash flow?

September 25, 2018 ⎯ mins read

Your cash flow is the bloodline of your business. In order to operate successfully you need to ensure that the flow is consistent and healthy.

When your customers start to pay their fees late, your cash flow begins to suffer. It becomes difficult to make business decisions when you don’t know when your next payment is coming in.

In order to correct late payments you need to spend extra time chasing up customers instead of focussing on more important aspects of your business. Not only does this add more stress to your business, but it also puts a strain on the relationship that you have with your customers.

Here are some insights into why customer payments may be late and what you can do about it.

Why are payments late?

Before you can try to fix the problem, you need to first take a step back and look at why customers may be paying late or why their regular payments fail. There are three main causes that will affect your customer’s payments; lack of funds in their account, expired credit cards, and closed bank accounts.

The most common issue you will face is the lack of funds available in customer bank accounts. If there isn’t enough funds available, the payment will fail. There are many reasons why your customers may not have enough funds. Maybe they simply forgot to transfer them over to the right account, or they haven’t received their income yet.

An important factor to also note is that credit cards are issued with an expiry and it is common for customers to forget to update their details in order to facilitate their ongoing payments. Cards also expire when they are reissued due to being lost or stolen. Both these cases rely on the customer to reach out to your business in order to update their details.

Whilst not as common as the previous two, it is possible that your customer’s bank account has been closed or blocked from direct debit payments. This case will also rely on the customer to reach out to update their details.

How can you stop late payments?

Now that we know why payments are late, we can explore the different options that are available to you when it comes time to prevent late payments. It’s important to note that best practice ensures that you have more than one option available in order to cover all of your bases.

The best way to ensure your customers have enough funds in their account is to set up pre-payment reminders to notify them of upcoming payments. By letting your customers know to expect a payment, you can remind them to check their account and ensure that they have enough funds available, and if not, rectify the problem before it happens.

On a similar note, you can also set up credit card expiry notifications to remind customers to update their details before their card expires. This will save you time later on when you don’t have to chase them up.

There will always be some payments that still end up failing. It’s important to know how these payments will be handled so you can rectify the problem as soon as possible. Automatic rebilling is a great choice that enables you to attempt the payment again after a specific period of time. This saves you a great amount of time and makes failed payment collection easy.

Nobody likes having outstanding payments, especially your customers. It’s always good to offer a way for them to pay their outstanding payments easily. Having an online payment portal is a great way to allow your customers to rectify their payments in their own time.

Not sure where to start in rolling out an automated subscription billing solution?

Read about the key considerations to be made when implementing an automated billing solution with our series of free Subscription Billing for Small Business Checklists, to help you prepare for and roll-out subscription billing successfully in your business.