How to manage the 3 types of late-paying customers

1 year ago

Late-paying customers are an issue most small businesses deal with. Our research reveals 9% of all payments to Australian small and medium-sized businesses are late, with business owners and staff spending an average of five days per year chasing late payments.

So what are the most common types of late payers? See if you recognise any of these characteristics in your late-paying customers:

The Procrastinator

Procrastinators know they’re paying late, and there isn’t always a reason for the delay. They ignore your emails and texts, and may even call you back when they know you’re busy.

Getting the procrastinator to pay on time

Whether you’re dealing with a late-paying customer who’s avoiding confrontation, or simply doesn’t see you as a priority, it’s important procrastinators aren’t allowed to forget about you. They need regular reminders of how you’re supporting them, that you value the relationship, and that you need to be paid.

Before you accept the job

Procrastinators usually have no reason for paying late. They simply haven’t made it a priority. This means incentives for early payment can be effective. Consider including this in your payment terms.

During the job

The more responsive you are to your customer when delivering your work or product, the more responsive they’ll be when it’s time to pay. When you’re too busy to reply properly, send a quick text or email to say you’ll get back to them. It (quite literally) pays to keep them in the loop.

Just before you finish the job

‘Nudge’, a book by Richard Thaler and Cass Sunstein explores the idea that small and apparently insignificant things can have a big impact on people’s decisions.

If we apply this theory to getting invoices paid, it suggests you should be in regular contact with your customers to “nudge” them towards paying. This is truer than ever if your late-paying customer is a procrastinator. So just before you complete your work or deliver your product, remind your customer of your payment terms.

A principle explored in the book called ‘herd behaviour’ suggests people are more likely to do something they see others doing. You can capitalise on this by letting your customers know people usually pay you within the first week (or whatever is true for your business). This could be a small note at the bottom of your invoice, or something you mention by email.

The Perfectionist

Perfectionists are process-driven people, who sometimes seem to be looking for reasons not to pay. Perhaps your invoice is missing the P.O. number, or it’s in the wrong format. These small things make a big difference to this individual.

Getting the perfectionist to pay on time

It can feel like this type of late-paying customer is trying to catch you out. However, there are often good reasons they ask to work a certain way. The best solution is to really understand what they need and minimise invoice errors.

It’s worth letting your customers know they can pay over the phone. You can bring this up at the end of a call about something else: “while I have you on the line, would it be easier if I took the payment now?”

Before you accept the job

Being clear on your terms is especially important with perfectionists. Ask them about their processes before you start work. Do they have any feedback on how you submitted your invoice last time? Or is there a particular time of the month when they normally pay their suppliers? This will help you know when or when not to chase payment.

During the job

If you’re being paid by the same person who requested your services or product, check they’re happy with what you’re delivering. This demonstrates that you value and are responsive to their needs. The more goodwill you build, the less they will push back on your invoice.

Just before you finish the job

If you’re dealing with a perfectionist, you might also want to play their processes back to them. Send them an email, mentioning how you will submit the invoice and what it will include so they have a chance to flag any misunderstandings sooner rather than later.

When you send the invoice

Some accounting software will automate parts of the invoicing process, minimising the need for manual data input and human error. Another way to reduce mistakes is to create a checklist of what your customer wants. Once you’ve had one invoice accepted by the perfectionist, save it as a template and edit for your next job. Alternatively, look for accounting software that will let you replicate and edit invoices.

The Plate Spinner

Plate spinners have a lot of things on the go at once. The environment they work in can seem a little chaotic, but they get things done. They normally pay on time, but every so often they let it slip.

Getting the plate spinner to pay on time

Building a relationship with this kind of late-paying customer is all about staying at the top of their to-do list. You need to show compassion for their challenges while being persistent. If the plate spinner is late paying you, it’s usually because they’re short on time. There are a few ways you can make it easier for them and ensure your voice is heard.

Before you accept the job

Clearly communicate when you’d like to be paid and the options for doing so. Ideally, put this in writing and discuss face-to-face. Making this part of a wider conversation about the project helps minimise awkwardness. Try to frame payment options as questions (how would you prefer to pay?) rather than requests (I like to be paid by…).

After the job

When letting them know it’s time to pay, it’s good to reference the recently completed work – perhaps commenting on how you feel the project went and offering to tie up any loose ends. This reminds them of the value of the relationship and makes it feel like it’s not all about you getting paid.

After they’ve paid

No matter the type of late-paying customer or how late the payment is, send a thank you note to let them know payment was received and that you appreciate it.

One response to “How to manage the 3 types of late-paying customers”

  1. Is there any way to flag a none paying customer by Month 2.
    I do not want to pull a days outstanding every month.
    Is there a way you can do a flag or pop up for customers that is behind on payment month 2.

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