Money Matters

How to manage the 3 types of late-paying customers

Small business owners have a huge variety of skills. But most of the business owners we talk to say that “getting paid” isn’t one of them.

So, we asked the experts and compiled advice from accounts receivable professionals and sales experts to map out the ultimate plan to get late-paying customers to settle their invoices.

But first, a little research. We surveyed 300 U.S. SMEs about the impact of late payments, and incredibly, our report found that 34% of their customers have no reason for paying invoices late. Meanwhile, 32% of SMEs cite “protecting client relationships” as the biggest barrier to chasing payments.

That shows us that the conversation is key to collecting late payments. But if you’re feeling awkward about asking your customers to pay up, it’s difficult to get paid. Which leads to the leading piece of advice from our panel of collection experts: Know your customer.

The more you know about your contact, the better chance you have of getting paid on time – or even early. Our ‘get paid’ panel classified the most common types of late payers to help understand their pressure points and how to best navigate the conversation to get their late invoices paid.

See if you recognize any of these characteristics in your late-paying customers:

The Procrastinator

Procrastinators know they’re late paying, but there isn’t always a reason for the delay. They ignore your emails. They don’t respond to texts. They may even call you back at a time when they know you’re busy and leave a voicemail to avoid talking directly. 

Getting the procrastinator to pay on time

Whether you’re dealing with a customer who’s avoiding confrontation, or someone who simply doesn’t see you as a priority, it’s important that procrastinators are not allowed to forget about you.

They need regular reminders of how you’re supporting them, that you value the relationship, and that, ultimately, you need paying.

Before you accept the job

Procrastinators normally fall into the bracket of customers who have no reason for paying late. They simply haven’t made it a priority. This means that incentives for early payments can be particularly effective. Consider including this in your payment terms.

During the job

The more responsive you are to your customer when your work or product is being delivered, the more likely they are to be responsive when it’s time to pay. When you’re too busy to reply properly, send a quick text or email to say you’ll get back to them later. It (quite literally) pays to keep them in the loop.

Just before you finish the job

Nudge, a book by Richard Thaler and Cass Sunstein explores the idea that small and apparently insignificant things can have a big impact on people’s decisions.

“By knowing how people think, we can make it easier for them to choose what is best for them, their families and society.” If we apply this theory to getting invoices paid, it suggests that you should be in regular contact with your customers to “nudge” them towards paying. This is truer than ever if your customer is a procrastinator.

So just before you complete your work or deliver your product, remind your customer of your payment terms.

A principle that’s explored within called ‘herd behavior’ suggests that people are more likely to do something that they see others doing. For example, people are more likely to pick an apple pie in a cafe if they see others asking for it. You can capitalize on this by letting your customers know that, on average, people pay you within the first week (or whatever is true for your business). This could be a small note that you include at the bottom of your invoice – or it could be something you mention by email.

The Perfectionist

Perfectionists are process-driven people, who sometimes seem to be looking for reasons not to pay. Perhaps your invoice is missing the P.O. number. Perhaps it’s in the wrong format. They’re only small things, but they seem to make a big difference to this individual.

Getting the perfectionist to pay on time

It can feel like this customer is trying to catch you out. However, often, there are good reasons that they’re asking you to work in a certain way. The best solution is to really get under the skin of their processes – to understand what they need and to minimize invoice errors.

It’s also worth letting your customers know if they can pay over the phone. This is often something you can tag on at the end of a call about something else: “while I have you on the line, would it be easier if I took the payment now?”

Before you accept the job

Being clear on your terms is especially important when you’re working with a perfectionist. Ask them about their processes before you start work. Do they have any feedback on how you submitted your invoice last time? Or is there a particular time of the month when they normally pay their suppliers? That will help you know when to chase them and when to leave it.

During the job

If you’re being paid by the same person who requested your services or product, check that they’re happy with what you’re delivering throughout the project. This demonstrates that you value their opinion and are responsive to their needs. The more you can build up goodwill at this stage, the more reluctant they will be to push back on your invoice when the project is over.

Just before you finish the job

If you’re dealing with a perfectionist, you might also want to play their processes back to them. Send them an email, mentioning how you will submit the invoice and what it will include so that they have the chance to flag any misunderstandings sooner rather than later.

When you send the invoice

Some accounting software will automate parts of the invoicing process, minimizing the need for manual data input and the room for error. Another way to reduce mistakes is to create a checklist of the things you know your customer wants. Once you’ve had one invoice accepted by the perfectionist, you can save the successful document as a template and edit it for your next job. Alternatively, look for accounting software that will let you replicate and edit invoices.

The plate spinner

Plate spinners, as the name suggests, have a lot of things on the go at once. Sometimes, the environment they work in can seem a little chaotic, but they get things done. They normally pay you on time, but every so often they let it slip.

Getting the plate spinner to pay on time

Building a relationship with this kind of customer is all about staying at the top of their to-do list. You need to show compassion for the challenges they face while being persistent.

If the plate spinner is late paying you, it’s usually because they’re short on time. There are a few different ways you can make it easier for them to settle. There are also some innovative ways you can cut through the craziness that surrounds them to make sure your voice is heard.

Before you accept the job

Clearly communicate when you’d like to be paid and what the options are for making the payment. Ideally, put this in writing as well as discussing it face-to-face. Making this part of a wider conversation about the project helps minimize any awkwardness. Also, if you’re able to, give your customer payment options you can frame the conversation as a question (how would you prefer to pay?) rather than a request (I like to be paid by…).

After the job

When you let your customer know that it’s time to pay, it’s a good idea to reference the recently completed work – perhaps commenting on how you feel the project went and offering to tie up any loose ends. This reminds them of the value of the relationship and makes the communication feel like it isn’t all about you and getting paid.

After they’ve paid

No matter the type of late-paying customer or how late the payment is, send a thank you note to let your customer know that the payment has been received and that you appreciate it.