Do your clients want to change payment terms because of COVID-19? Some are trying to delay payment because of their own pandemic-related financial difficulties, and it’s causing a problem for businesses across the country.
Before the pandemic, 31% of small businesses in Canada dealt with bad debt. According to the Toronto Star, business debt and bankruptcies increased even further during the pandemic, and have affected businesses of all sizes. Global News also reported that as of January 2021, roughly 181,000 Canadian small businesses were considering closing their doors.
While you may be sympathetic to your
client’s ongoing struggles, this freeze to your account receivables can
seriously impact your own cash flow and undermine your business. When you can’t
buy supplies, you can’t take on new orders. When you can’t pay your staff, you risk
permanently losing your best people. The effects of delayed payments from COVID-19
are not just temporary, especially as we head into year two of the pandemic. Last
year, 58,000 small businesses in Canada closed. If you’ve made it this far, you need a
plan to keep going.
So, when clients just can’t pay because
they are facing their own challenges, what do you do? You need to handle the
late payment, without souring the relationship with your client. Here’s how:
1. Change Payment Terms, On Your Terms
Changing your payment terms can help
encourage your clients to prioritize paying you. Shorten your payment terms
from 60 and 90 days down to 30, or even have invoices due upon receipt. Add an
interest charge to all late payments, so that you’re not essentially giving
your clients interest-free loans while they wait to pay. It will also
incentivize clients to pay, to avoid having to pay the late fees.
2. Treat Clients as Individuals
BrooksCity
recommends identifying clients who are chronic late payers. Require these
clients to pay early, potentially before you have even fulfilled their order or
completed their work. This can force the client to prioritize paying you over
the other bills that they need to pay.
3. Payment Plans
You can also offer clients who are
struggling to pay a payment plan. Immediately getting even a quarter or a half
of the payment that you’re owed can help your business move forward, even if
you have to wait for the rest of it. You can still claim interest on the money
that the client cannot pay up front.
4. Consider Invoice Factoring
Invoice factoring is a great solution
because you receive an agreed upon percentage upfront, up to 97%, whether your
client can pay right now or not. The invoice factoring company pays your
invoices when you issue them, and then they handle collection from your
clients. This allows you to immediately invest in your business and cover your
costs, even if your client is very delayed in paying.
Non-recourse factoring is an even better
idea during the current crisis. In this arrangement, the factoring company
handles your bad debt, so that your business isn’t impacted. Reach out to J D Factors to learn more about how to protect your business while getting control
over your accounts receivable, even in today's tough economic climate.
