Late payments can quickly impact your cash flow and put your organisation at risk. In Belgium, unpaid invoices and late payments are one of the main reasons for bankruptcies. In the current period of inflation, almost two thirds (64%) of Belgian companies are worried about a possible explosion in the number of late payments, according to the European Payment Report, the annual report by the collection agency Intrum.
So, what can be done to deal with bad payers and limit the risks of late payments, which have increased since the Covid-19 crisis and the war in Ukraine? You might think that going directly to a lawyer or debt collection agency is the number one solution, but there are techniques and laws that can help you avoid immediately using important and costly resources.
Check the creditworthiness of your customers
This first solution involves evaluating your client's ability to pay on time. In your cash management, anticipating risks remains one of the best strategies for avoiding late payments and defaults. From the very first contact, you can collect essential information on your customers to spot certain profiles that are bad payers or insolvent.
Here is the easily collectable information for evaluating the creditworthiness of a company:
- registration with the Crossroads Bank for Enterprises for a Belgian company
- the annual accounts published with the Commercial Court
- industry and geographical data that will give you a view of the health of your customer's industry, as well as the economic and political situation in their country, if they are based abroad
- any unpaid bills to public bodies
The best way to get this information is to meet your customer. You will then be able to see directly if the company is giving you access to information in full transparency or if it is hiding its financial situation.
Check and take care of your invoicing
Before you judge your customers' payment practices, quickly check that you are not the cause of the problem. You can check the following items as soon as the due date of an invoice has passed:
- are the payment methods you have proposed causing problems for your customer?
- are the due dates of the invoices stated correctly?
- is your customer satisfied with your services?
- does your customer have any comments regarding the invoices?
Send a payment reminder if everything looks correct and clear in your invoicing and you have not received payment. Regularly check the status of your invoices and inform your customers of delays as soon as possible. This will give your customer the opportunity to pay the invoice if it is an oversight or provide some remarks. Sometimes, a little reminder is all it takes for your customers to get their act together.
For customers with long-term contracts, asking for a deposit can help you guarantee a minimum cash flow and ensure the smooth running of your business. Deposits are not regulated by law, but it is very common in many industries to use this system, especially for custom services and goods. If you want to ask for a deposit for some of your contracts, choose an amount that is not so excessive so as not to scare the customer. Deposits of 20 to 30% are often requested, especially in the events sector, whereas the amounts will be higher in the construction sector to cover the purchases of raw materials.
Plan for late payment penalties
You can charge late payment penalties to encourage your customers to pay you on time. Remember to specify the conditions of application and interest rate of the penalties in your General Conditions of Sale and on your invoices. Seek legal assistance to validate the terms of the contract.
Use a digital invoicing system
Switching from paper invoices to a digital system has many advantages, in particular the fact that it improves the organisation of your payment requests:
- faster processing of invoices by the accountant or manager
- decrease in processing costs, as paper invoices are more expensive than electronic versions
- better traceability of payments
- simplification of VAT returns
There are many tools available for digitising and automating your administrative tasks. Here are a few examples:
Make payment easier and offer digital payment methods
A formidable weapon against late payments is to make it easier for customers to pay you. This is a positive approach to eliminating as much of the burden on your customers as possible when it comes to paying your invoice. To limit these constraints, you can, for example, offer digital payments or even add payment links to your invoices and quotes. This method allows you to significantly streamline your customer journey.
The last resort: the debt collection agency
Your customers may ignore your reminders or the payment methods you have in place may not be sufficient to get them to pay. If, after all your efforts, your invoices remain unpaid, consider seeking outside help. An experienced and professional debt collection agency will use the right approach to get your customers to pay their invoices while maintaining good business relationships.
As you can see, careful invoicing, smooth communication with your customers and the digitisation of your accounting are the keys to success. With these tips, you will be better equipped to avoid late payments and keep your business financially healthy.