Below we offer a round-up of tips for handling late-paying clients in South Africa.
The frequency and scale of late-paying clients in South Africa is alarming. SMEs, in particular, are hard hit.
However, there are steps it’s possible to take to help prevent late payments – and to deal with them constructively when they occur.
| BizFunding offers funding against invoices to qualifying businesses to cover cash-flow shortfalls when you’re awaiting payment. APPLY NOW |
The scope of the problem in South Africa
In a 2019 survey of small and medium enterprises, 91% of respondents were owed money outside the agreed terms of payment.
On average, a SME has over R99,000 outstanding at any given time. Often this money is critical for funding operations.
Client organisations of all sizes, across both the private and public sectors, contribute to the problem.
According to BusinessTech, government departments were late in settling more than 3,000 invoices in the third quarter of 2022 alone. In December last year, service providers nationwide were still waiting for approximately R90 million in late payments.
Strategies for handling late client payments
Overall, the best approach is to be proactive. Head off late payments as far as possible. And once agreed settlement dates are reached, don’t wait to follow up.
It’s also about striving to maintain positive communication with clients, including those who pay late.
In business, it doesn’t pay to damage relationships – even in the rare cases where it’s time to let them go.
1. Create a payment contract
A legally binding contract, signed upfront, is the best way to ensure payments are made on time.
Clearly and concisely lay out the payment terms – including due dates, accepted payment methods and a policy for handling late payments – so both parties know what’s expected.
A payment contract cuts out any ambiguity. It’s also useful for holding late payers to account.
2. Invoice clients frequently
Serial offenders require constant reminders of how much they owe and by when. Invoicing late-payers bi-monthly or weekly is likely to generate a positive response.
A friendly follow-up phone call leaves delinquent clients with less wriggle room.
3. Request partial payment upfront
Ask offending clients to pay half upfront and half on completion of a project. This halves risk. It will also help ensure that funds are available to cover the costs of materials and wages.
4. Offer an incentive for paying ahead of time
Consider offering a discount to clients who pay cash on delivery or ahead of time.
Direct an “exclusive” 1 to 2% discount to former late-payers on condition they settle the full amount 10 days before the due date.
5. Follow up on late payments straight away
Chasing late payments is stressful but vital. The sooner you tackle the problem, the better.
Never allow more than a few days to elapse before following up. The easiest way to start is to send a standard, politely worded email requesting payment.
Consider following up over the telephone.
Adding this personal touch often leads to a better outcome.
It gives the client a chance to explain and, if necessary, clarify when payment will be made. This is a good time to strengthen your business relationship. Show understanding and make reasonable concessions, while making your own business needs clear.
If these steps don’t have the required result, send a second email highlighting the agreed terms and late payment penalties.
6. Communicate additional costs prior to invoicing
Disputes about additional costs (over and above quoted amounts) can justifiably delay payments.
Rather eliminate the ill feeling and payment delays that this can cause.
At the outset, build suitable buffers into payment agreements. Also ensure that both parties agree on a clear process for handling any unexpected costs.
If you do encounter extra costs that you couldn’t predict, communicate with the client straight away. Resolve the issue completely before issuing an invoice.
7. Enforce a late payment policy
When a contract is in place and you’ve followed up but payment is still outstanding, invoke the late-payment policy.
This might entail charging a late payment fee, for example.
Where even this approach doesn’t yield a result, consider declining to do business until the debt is cleared. This – and ultimately handing a client over for collection – should be your last resorts.
Invoice funding for while you wait
Does your business need funding to mitigate the impact of one or more late-paying clients on cash flow? If so, we can help.
BizFunding offers fast, flexible funding against invoices. Handling late-paying clients in South Africa is much easier if you don’t have to stress about a cash flow crunch.
Apply in minutes and get the cash advance your business needs.
