In this article, we offer a round-up of the best ways to handle late payments from clients.

Impact of late payments

Late payments from clients can create serious cash-flow problems.

For example, late payments can lead to a business going into arrears on its own due payments, or being unable to pay its suppliers. It can also make it a struggle to pay staff on time.

This can continue having negative effects, long after the clients pay up. Especially for small businesses, it can be disastrous.

How common are late payments in South Africa?

Late payments are very common with small businesses in South Africa. A survey by Xero found that 91% of South African SMEs are owed money outside of payment terms.

On average, these late payments totalled R99,801 at any given time. When you consider all the SMEs in South Africa, this equates to as much as R249.5 billion nationally.

Due to these late payments, a fifth of the surveyed businesses struggled to pay for business-critical services and 17% have faced bankruptcy.

The best ways to handle late payments from clients

Handling late payments can be a balancing act. The goal is to ensure prompt payments without spoiling the good working relationships with your clients.

Double-check the details

Before you contact a client about late payments, ensure you have sent the correct invoice and banking details. It’s worth double-checking, especially if the client usually pays on time.

Communicate openly with your client

Once you’re sure everything is in order, contact the client about non-payment. Sometimes it comes down to an easily explained and rectified mistake.

Set terms early in the relationship

Ensure your payment terms are clear and accessible early in the relationship with all clients so that there are no misunderstandings. A lack of clarity can’t be used as an excuse for non-payment.

Request deposits or upfront payments

If you’re concerned about late payments disrupting cash flow, request upfront deposits of 50% or more. In some circumstances, full payment upfront might even be appropriate.

Invoice your clients promptly

Don’t let your own tardiness interfere with payment. Make sure clients are invoiced promptly as per the business’ payment terms.

Send reminders

Depending on the payment terms (immediate, 15-day, 30-day), you can send out reminders to clients that invoices will be due soon so they can arrange payments in advance.

Keep comprehensive records

A lack of comprehensive records can mean some payments fall through the cracks. Keep records of everything so that you can prove what is owed by each client.

Use an accounts collection service

If you don’t have the time or resources to chase payments or send out reminders, hire a person or service to act as an accounts collection service on your behalf.

As a last resort, stop doing business with late payers

If a client is consistently late with payments, consider ending the business relationship. Losing a client is less damaging than having a non-paying client.

Bridging a finance gap with an asset-based loan

If late payments are creating a critical cash-flow issue, a short-term asset-based loan can help bridge the gap.

This involves taking a loan you secure using an asset of value. One example of such an asset is a personal or business vehicle. Other examples range from luxury watches or jewellery to artworks.

Advantages of an asset-based loan from Lamna:

• fast access to funds (typically within 24 hours)
• NCR-compliant interest rates
• no impact on credit rating
• completely confidential
• no hidden fees or early settlement penalties.

If your business is currently considering ways to handle late payments and we can be of help with an asset-based loan, call or WhatsApp us on 086 111 2866. Alternatively, start the application process online.