Preventing Late Payment Disaster:
 

Sometimes, late payments may be the fault of the business owner rather than the customer. Customers drag their feet on payments if they are not satisfied with the merchandise or if they receive unsatisfactory customer service. Addressing customer complaints may speed up payments and keep a business relationship profitable. Of course, there is always the occasional bad customer, but customers should not be angrily attacked over late payments. This can ruin professional relationships and cause you to lose a valuable customer.
 

It may be possible to save yourself the difficulty of dealing with problem customers by vetting them ahead of time. Running a credit check can save you time and money in the long run. Some companies offer affordable credit check rates to small business owners. The information you receive from a credit report will help you determine whether or not you want to risk taking on certain customers.
 

If a bad customer manages to make it through the screening process, you have no choice but to stop supplying that customer until you are compensated. This is not a step to take lightly, but it may be necessary. For example, a customer who is three months behind on payments should not benefit from your products or services for free. If bad customers know that they can get a product without paying for it, they will take advantage of the situation.
 

It might even be necessary to look into professional collectors in extreme cases. Potentially losing a customer may seem like a bad business decision, but keeping one around who refuses to pay is even worse. Bad customers only serve as a drain on your time and resources, and it is always best to cut them loose.

Make Your Customers Aware of Your Payment Rules:
 

Always outline your invoicing procedure and keep a slush fund. While this may seem basic, too many small businesses do not apply these rules. Clearly outlining your invoicing and payment policies leaves customers with no excuse for paying late.
 

The policy should explain acceptable forms of payment as well as the dates and times payment is expected after a customer is invoiced. It is important to adhere to these policies once they are established. Breaking your own rules will not motivate your customers to adhere to them. You set the standard, and if you wait a month to even send an invoice, it does not create a sense of urgency for your customer. Set aside some time each week to send out new invoices and follow up on the ones currently out.
 

It might also be prudent to initiate a penalty fee of 3% on late payments. This serves a twofold purpose: it gives your customers greater incentive to pay on time, so as to avoid the penalty fee, and also helps to negate the effects of check cashing fees or cover the bank's own late fees.
 

A slush fund acts as a reserve and provides a cushion should a customer happen to be a few days late on a payment. This will help keep you current on your payments while you chase down what is owed to you. A good rule of thumb when establishing a slush fund is to keep a reserve large enough to pay rent, salaries and services for at least one month. Hopefully you won't have to use it, but it can keep you from being labeled as a bad customer.
 

Unfortunately, late payments are inevitable. Even with careful scrutiny and clear guidelines, occasionally customers "forget" to pay on time. There is nothing wrong with chasing down payments as long as it is done in a professional manner. Often an email or polite phone call is all customers need to remind them and settle the matter.

Make it Easier on Customers:
 

Some companies benefit from offering incentives for early payments or payments made on time. Offering financial or service benefits to customers who pay on time makes sense. Not only does it give them an added reason to pay their bill, it builds customer loyalty, and you want the loyalty of customers who pay their invoices on time. A two percent discount for paying within 10 days of receiving the invoice is typical in many companies. However, finding more creative incentives such as good customer rewards may distinguish your business from others.
 

Accept as many forms of payment as possible to make it easy for customers to settle their invoices. Businesses that only accept cash or guaranteed funds do not make life easy for their customers. People rarely carry cash, and guaranteed funds, like money orders, are not free and take up valuable time. While there are normally fees (up to three percent) assigned to vendors who accept credit cards, they may be worth looking into, particularly if you have customers who use credit card rewards.
 

Additionally, banks are competing for small business and might have some affordable options that make your life easier. Look into the option of electronic transfers. This makes it easier for customers to pay their invoices, and makes sound business sense if you have several repeat clients.
 

Discussing late payments with customers is never pleasant, but it must be done. There is no reason to make threats or become impatient. However, there is every reason to collect what is owed. Remember that late payments affect cash flow, which determines how long your small business will survive. Given the uncertain economy, small business owners need to be particularly careful when they are monitoring their payments and their cash flow.

Reference site : http://ezinearticles.com/?Dealing-With-Late-Payments-From-Customers&id=4921690