As the late payment crisis deepens, wholesale business owners have struggled to pay their invoices on time. Late payments can wreak havoc on a company's cash flow and put them in danger of being unable to pay their suppliers or make payroll.
The problem is even more acute for wholesale businesses as there are often larger sums at stake, and the customer base is complex and varied.
Research shows that the wholesale industries find late payments around 10% more problematic than the average business, with 52.3% of companies in the wholesale and distribution sector reporting that late payments are their main challenge regarding cash flow, compared to the 42.8% of other businesses.
52.3% of wholesale and distribution companies identify late payments as their main cash flow challenge
Since 87% of businesses report that they are typically paid after their invoice due date, the impact of late payments on a wholesale business's finances can be massive.
To ensure that their businesses remain competitive and profitable, wholesalers must look for solutions that will help them manage accounts receivables more effectively.
So, read on to learn how wholesale businesses can use Chaser's tried and tested solution to address their cash-inflow challenges and get paid on time.
Use contracts to establish payment terms
Setting clear payment terms and ensuring they are effectively communicated is foundational in ensuring customers pay promptly.
Contracts should include all pertinent terms, such as payment due date, late payment fees, and interest rates for delinquent accounts. Getting your customer to agree to these terms in advance can cut through a lot of the confusion and uncertainty if there are any dispute issues.
These terms should also be linked to and reinforced in your invoices and payment reminders to ensure customers remain mindful of their payment obligations.
Creating effective payment terms
If you don't already have complete payment terms in place, here are some of the key considerations to keep in mind when creating effective payment terms:
- Ensure all relevant information is in the contract, such as payment due date, late fees, and interest rates for delinquent accounts
- Send invoices promptly after a sale or service has been provided
- Present your payment terms on invoices and other relevant documents
- Offer incentives to encourage customers to make prompt payments, such as a discount for early payment or cash bonuses
- Implement late payment penalties when payments are not received on time
- Offer multiple payment options like credit cards, bank transfers, and checks
You can also use Chaser's free credit control and debt collection policy template for businesses as a basis for setting up your policy. This includes defining payment terms, such as the due date, late fees, and interest rates for delinquent accounts.
Accurate, timely invoicing
Accuracy is critical when invoicing customers. Ensure the dates, product descriptions, and amounts are correct before sending the invoice.
Mistakes on invoices can confuse and lead to payment issues when customers are trying to pay. To ensure accuracy, double-check your invoices and use accounting software that makes it easy to keep track of all the information you need.
At the same time, making sure that you send out invoices promptly is essential. Get into the habit of sending out invoices as soon as services are performed, or products are delivered to help keep your cash flow running smoothly.
Maintaining a consistent invoicing schedule sets the tone for your customers and helps manage their expectations. If you send out invoices once a month, make sure they go out on the same day each month. This way, customers will know when to expect them and can be prepared with payment when it arrives.
Sending out pre-invoicing emails can help to prevent bill shock and are also an excellent way to give customers a heads-up about what they will be invoiced for. This can help to speed up the payment process, as well as help you to build better relationships with your clients.
Building your invoice
When it comes to building your invoice, make sure that you include the following:
- A clear and concise description of the services rendered and products sold
- A unique invoice number to help keep track of payments and avoid duplicate invoices
- The quantity, unit price, and total cost of each item purchased
- The total amount due
- Any applicable taxes or discounts. Your payment terms (due date, late fees, acceptable payment methods)
- Your contact information (name, address, phone number, and website URL)
It’s also a good idea to include a “thank you” message to your clients on your invoice and send it when they make payment. This shows that you value their business and appreciate their time.
Conduct credit checks
Credit checking is often approached as a part of the onboarding process, but it’s also crucial for managing customer payments. Conducting regular credit checks on your customers helps you determine their risk profile, set payment terms and limits accordingly, and ensure they will pay you on time.
How to conduct a credit check
Credit checking is a relatively straightforward process. All you need to do is collect information from your customer, such as their name, address, and business information.
Once you have that information, you can use it to access credit reports from one of the major credit bureaus, such as, Experian, Dunn & Bradstreet, or from within your accounts receivable software. These reports will provide detailed information about your customer’s credit history, including payment records, debt levels, and other items that may affect their ability to pay you.
By reviewing credit reports for your customers, you can ensure they are in a healthy financial position to work with you and manage their payments promptly. You can also use the information in these reports to identify potential risks and set individual amounts and credit limits for each customer.
Chaser's credit checking feature provides a streamlined way to check your customer’s credit and ensure they are a good fit for you. Chaser’s automated system will pull the latest information on an ongoing basis, giving you real-time insights into your customers’ financial history and allowing you to decide your payment terms with them quickly.
Have a dispute-handling process in place
Payment disputes happen, and an effective process to address them is critical to maintaining healthy customer relationships.
Establishing clear policies and procedures for dealing with payment disputes can help you resolve any issues quickly and efficiently while minimizing any potential disruption to your cash flow.
Most disputes can be resolved by ensuring accuracy in your invoicing process and the payments received. This means double-checking invoices before they are sent to customers, ensuring that all the required information is included, and verifying any payment processing fees.
It’s also a good idea to have an open communication channel with your customers so that you can quickly answer any questions or address any concerns they may have. Having a clear payment terms policy in place and providing customers with multiple ways to pay can help reduce the likelihood of disputes and make it easier for them to follow through on their obligations.
For times when disputes do arise, having a transparent dispute resolution process is critical. This should include engaging in open dialogue with customers and exploring all options to come to a resolution.
Dispute-handling best practices
Some of the most effective best practices for dispute resolution include:
- Establishing a dedicated dispute team or contact: Having one central point of contact for disputes can help ensure that all parties are kept in the loop and that any issues are dealt with promptly.
- Keeping an open line of communication: Listening to customers’ concerns and providing timely updates on the status of each dispute will help build trust and promote a more productive resolution process.
- Documenting every step of the process: Keeping detailed records throughout the dispute-handling process will help ensure that any decisions and agreements reached are correctly recorded and followed up on.
- Analyzing each dispute: Taking the time to review each argument and identify any areas of improvement will help ensure that similar issues don’t arise in the future.
In the long run, having an effective dispute-handling process will help you save time and resources while protecting your business and reputation.
Follow up on late payments promptly
Reacting to late payments promptly is as important as sending out invoices promptly. Letting late payments slide can cost you dearly in the long run, racking up bad debt and threatening your cash flow.
Establishing regular follow-up routines that fit into your customer service strategy can help you minimize late payments and make them easier to manage if they do occur.
The only downside of constantly following up on late payments is that it involves significant time and resources. Automating the process with software solutions can save you both time and money while also helping to protect your business's reputation. For example, fashion wholesale business Love Brands are saving 15+ hours per week by automating this process.
Using an automated payment reminder system, you can set up custom messages and reminders to be sent out regularly to customers with overdue invoices. This helps customers know when payments are due and the consequences of not paying on time.
Using automation lets skilled staff refocus on more productive tasks while also ensuring that customers are reminded of their payments in a timely and efficient manner.
Automated payment chasing is also highly effective, with businesses that follow up with 90% or more of their invoices being the most likely to get paid within a week of their invoice due date.
Since 9 in every 10 invoices are paid late, automated payment chasing is an effective way to combat the rising issue of late payments.
How often should you chase payment?
When it comes to following up on late invoices, one of the most common questions businesses ask is how often they should be chasing payment. The answer to this question will depend on your customer and the terms of your agreement with them.
However, there is a generalized schedule you can use as the basis of your policy:
Send your first reminder when the invoice is issued:
- Sending out your first reminder when the invoice is issued lets your customer know you expect timely payment, prevents "bill shock," and includes relevant documentation, confirming details for easier payment processing.
Remind them 7 days before the invoice is due:
- Prioritize prevention by sending a gentle reminder to ensure customers have funds available, demonstrate organization, and attach the original invoice for easy reference.
Remind them on the invoice due date:
- Send a reminder on the due date via email or SMS, leveraging the high open rate of text messages to increase the chances of prompt payment.
Follow up 3 days after the invoice due date:
- Act promptly by following up via email, phone call, or text message, attaching relevant details and invoice copies to facilitate communication and provide quick answers to any questions.
Follow up via email a week after the invoice is due:
- Strengthen urgency in your email to prompt payment, attaching the original invoice and including payment terms and conditions for clarity.
Follow up via phone and email 2 weeks after the invoice is overdue:
- Combine phone calls and emails to assertively communicate the urgency of payment, maintaining professionalism and staying organized with accurate record-keeping.
Offer a payment plan via phone and email 3 weeks after the invoice is overdue:
- Discuss payment options, agree on a reasonable timeframe, and consider installment plans to accommodate customers facing financial difficulties.
Send a follow-up email with a proposed payment plan:
- Summarize previous conversations, outline the proposed payment plan in writing, and emphasize the consequences of non-adherence to the plan.
Send a debt collections notice when the invoice is 30 days overdue:
- Adhere to legal guidelines, clearly state the outstanding amount and the number of days overdue, communicate the next course of action (e.g., involving a debt collection agency), and set a deadline for payment.
It's important to note that all of these timescales and notices may vary depending on your business, the location of the customer, or other factors. Additionally, if a customer cannot pay within these timescales, reach out to them as soon as possible to create an individualized payment plan.
Offer payment incentives
Payment incentives are an excellent way to encourage customers to pay their invoices on time. You can use payment incentives to foster long-term relationships with your customers and reward them for paying on time.
Several types of payment incentives exist, such as discounts or early-payment bonuses. Choosing the right incentive that works for you and is within your budget is essential.
Discounts are the most common early payment incentives. Generally, these are fixed percentage discounts or special offers, such as discounts for customers who pay early. You can also offer a bulk discount if a customer pays multiple invoices together.
You might also choose to offer a stratified discount based on how early the customer chooses to pay. For example, you might offer a 1% discount if the customer pays within 10 days of receipt, 2% for payment within 7 days, and 3% for payment within 5 days.
However you choose to structure your early payment discounts, ensuring that they are communicated to your customers as part of your payment terms is essential. Additionally, you must consider what your wholesale business can afford, and it’s recommended to segment your customers beforehand, to avoid offering discounts to the wrong groups of customers.
Maintain good financial practices
While most of our tips for far have focussed on your interactions with your customers, there are internal steps you can take to improve your cash flow.
Maintaining good financial practices is critical to ensuring consistent and reliable cash flow, and there are simple steps you can take to do this:
- Keep an accurate financial record - Keeping accurate financial records is essential for any wholesale business, especially regarding cash flow. Ensure you’re tracking all invoices and payments, as this will help you spot trends in customer behavior.
- Regularly review financial reports - Regularly review your financial statements to ensure you manage cash flow in the best way possible. This will allow you to spot irregularities quickly and make any necessary adjustments before they become significant issues.
- Implement financial KPIs - Establishing financial Key Performance Indicators (KPIs) will help you keep track of your cash flow. Monitor KPIs such as invoice payment times and days sales outstanding to identify areas where improvements can be made. Try this free receivables KPI tracker for google sheets and excel.
- Use cash flow analysis - Use cash flow analysis to assess current and future cash positions. Analyzing your cash flow will help you budget for upcoming payments and expenses, identify areas of potential overspending, and improve debt collection.
- Analyze customer payment behavior - Look for customer payment behavior patterns to help you better understand how customers manage their accounts. This analysis can help you prioritize customers for debt collection and develop strategies to reduce delinquency rates.
- Implement cash management tools - Automate your cash flow processes by implementing payment processing software, receivables management tools, and other financial technologies. These tools will streamline your accounts receivable and help you manage invoices, payments, and cash flow more efficiently.
These simple steps can help you improve your accounts receivable processes, reduce late invoice payments, and boost your bottom line!
Use automation
Automating in an effective way to improve your accounts receivable processes and reduce outstanding debt. Love Brand’s story is an excellent example of how a wholesale business can improve its accounts receivable process by leveraging automation platforms.
After switching to an automated platform, the company was able to cut down its A/R time by 15+ hours per week while also reducing late invoice payments.
Thanks to Chaser, Love Brands can track customer payment data, anticipating and flagging any accounts that are likely to become delinquent in the future so they can take corrective action before things get out of hand.
"Chaser has become an indispensable tool in my working routine. It’s allowed me to create personalized templates that convey the same friendliness and the same tone I would use with customers in manual emails." - Rossana Vittorielli, Credit Control Manager, Love Brands.
As you can see, using automated credit control platforms like Chaser alongside an effective accounting system (such as Xero or QuickBooks Online) enables businesses to save time, reduce manual effort and ultimately improve their bottom line. Whether you’re managing delinquent accounts or predicting which customers are likely to become delinquent, Chaser can help take the stress out of credit control.
Maintaining your bottom line
To combat the late payment crisis, wholesale businesses need to adapt to the changing nature of customer payments. Wholesale businesses must take proactive steps to ensure that their accounts receivables are being collected promptly, as late payments can have a damaging effect on both cash flow and long-term stability.
The strategies above have proven to be effective ways to reduce the number of late payments and improve your bottom line. But if you want to proactively reduce your overdue invoices, Chaser can help.
Chaser's market-leading platform automates invoice chasing, helping businesses ensure payments are made on time. The automated emails and SMS messages sent by Chaser provide customers with polite but persistent reminders to pay an outstanding balance.
By collating all payment and invoice information in one easy-to-access place, Chaser's Payment Portals streamline the payment process for customers, leading to faster payments.
The data collected by Chaser makes it easy to see which of your customers are at risk of late or non-payment by tracking their payment history. The in-built credit checking tool helps you to identify those customers and manage your business's credit risk.
If the situation necessitates it, you can also outsource your credit control needs to Chaser’s team of experts, allowing you all the benefits of having an in-house credit control team, but at a fraction of the cost.
Chaser also offers integrations with popular accounting software packages, such as Xero, QuickBooks, FreshBooks, and many more, so that payment data can be automatically updates across all of your systems. This ensures that invoices can be followed up on accurately and paid quickly without any unnecessary manual effort.
To learn more about how Chaser can help your wholesale business collect payments quickly and easily, book a call with us or start your free, no-obligation 14-day trial today.
