Credit & Risk Management

11 credit tips to handle slow payers

Effectively managing customers who don’t pay on time is critical to the health of your business. Delinquent customers can create cash flow problems for your company, which can both constrain your ability to fund operations and invest in the growth of your business. Here are some tips you can follow when working with slow-paying customers.

1) Start by Reviewing Payment History

First review your customer’s payment history to determine what type of slow payer you’re dealing with. There are some slow payers who take their time but reliably pay at the end of the payment term, such as large corporations. On the other hand, there are slow payers who consistently pay late.  Types of behavior need to be addressed as they can wreak havoc on your business.

2) Create a Clear Contract

Detailing payment terms and penalties for late payment avoids confusion about your terms and expectations.

3) Immediately Send an Invoice

When you are slow to send invoices, it can send the message that you are not concerned about being paid promptly.

4) Clearly Communicate Due Dates and Late Penalties

This will help make the point that you expect to be paid on time and remind your customer of the penalties they will incur for not doing so.

5) Send a Due Date Reminder

If you have not received payment and the due date is rapidly is approaching, a friendly reminder can help prompt payment.

6) Offer Early Payment Incentives

Offer your customer a reduced rate for paying invoices early.  After all, everybody likes to save money.

7) Ask for Deposits for Advance Payments

For a chronically delinquent customer, it may be prudent to require a deposit or advance payment to reduce the risk, if you want to continue doing business with them.

8) Lower Credit Limits or Place Holds on Delinquent Accounts

If you find it necessary to refuse credit, do it as tactfully as possible to help preserve the relationship. For example, send a polite note explaining why you cannot extend credit at this time, and offer other options such as cash on delivery.

9) Ask for a Promissory Note for Past Due Items

If your customer has a significant past due balance consider asking for a promissory note, and collateral or a guarantee to secure the note.

10) Hire a Collection Agency

No matter how hard you try you won’t be able to get some customers to pay. In these types of cases, a professional collections agency may be your best option.

11) It’s OK to Make Exceptions (Sometimes)

Sometimes a customer pays late because of extenuating circumstances. This works for good customers you want to keep and who can get current in the short-term. Develop a mutually agreeable payment plan for the past due amount and revised terms for future sales. This will not only reduce your risk, but it will also help build the relationship. Your customer will remember you were there for them in their time of need.

Avoid the problems associated with slow payers by performing an in-depth credit review of prospective customers and by regularly reviewing the creditworthiness of existing customers. Many companies use business credit reports to do this because they consolidate the key information needed to assess credit risk. Contact us if you’d like to learn more.

Eric Kider
Risk Management General Manager

Eric Kider currently is the Senior Vice President/General Manager, Data & Credit Solutions. He is a highly motivated senior executive bringing more than 30 years of dedicated experience and a proven track record of driving significant revenue growth and margin improvement within, both, the financial and information services industries. Eric possesses expertise in all aspects of business management, including the development and oversight of sales, operations, product management, technology, and customer service. He holds a BS degree in Economics and Government from Skidmore College and took graduate courses at Sheffield Hallam University (Sheffield, United Kingdom).