What is a past-due payment?
A delinquent payment is a missed or late payment for a financial obligation, such as a loan, credit card bill, or rent. When a payment is delinquent, the borrower or customer has failed to make it on time, which can result in penalties and fees.
When people don’t pay within the agreed-upon time limit, most businesses charge late fees. The way they gather debts and payment terms will differ for each type of business.
As an example:
- People with credit cards usually have to pay interest of 25% to 35% when a payment is late. They also let you pay part of the amount.
- When a payment is 30 days past due, marketing firms usually start collecting it.
- If you don’t pay your bills for two months, the utility company may stop providing service.
- Most SaaS companies end their services immediately, and they put a message in a popup on their website and app to let people know.
- If you don’t pay on time, the loan or seller may take more steps to get the money back, like reporting the late payment to credit bureaus or going to court. The borrower’s credit score and cash situation may get worse because of this.
Like words
- Account past due
- Past-due debt
- Payment late
- Account not paid
Reasons Why Accounts Are Past Due
Credit Card From The Past
Customers may miss a payment if they don’t realize the card linked to their account is outdated. A company couldn’t handle this problem without payment software that would catch it and let them know right away.
Not Enough Money
If there isn’t enough to cover the total due payment amount, the vendor’s payment provider won’t be able to go through with the deal.
This might happen if:
- The customer put in the wrong card information.
- They didn’t use the right card.
- Their bank turned down the deal because they were worried about fraud.
- Their bank account doesn’t have enough money.
- Several significant transactions hit their account at once.
- Forgetting something or having money problems
Life’s duties can get in the way and cause someone to forget to make a payment. Other significant problems, like insufficient money, can make the customer fall behind on payments.
Effects of Late Payments on the Financial Health of a Business
As with financial institutions, the people behind their payments can face significant problems. For people, being late on payments can hurt their credit scores, making it harder to get loans or credit in the future. Plus, you might have to pay late fees, higher interest rates, or even legal action from your creditors.
Late payments can hurt companies by lowering their profits and even causing them to lose money. They will also have to spend time and money collecting past-due bills, which takes time away from other business activities.
More money spent on administration
It can significantly affect your bottom line if your accounts receivable collections team has to spend more time and money on management tasks like finding people who haven’t paid on time. It takes more time and work to get a past-due payment; the longer it is past-due,.
Lost money and bad relationships with customers
Customers who regularly pay late are usually less interested in the vendor’s product or service. This is why delinquency is one way to find customers likely to cause problems. Customers will think badly of your business if your internal billing processes aren’t working well, leading to late payments.
In either case, if your customers are unhappy with the experience, they’ll probably leave you more often.
Problems with Cash Flow
It doesn’t matter if a late account pays off their debts; being late causes the company instant cash flow problems. Having to deal with this makes it hard to meet financial responsibilities like paying bills or making a significant investment (like buying equipment or hiring more people).
What to do to keep customers from being late
Getting past-due payments to go away depends on your internal dunning process, how well your bills work, and how happy your customers are.
Self-Service Billing and Payment
Automated billing is the most essential part of a smooth, efficient payment process. In particular, this is important if your business relies on recurring income, meaning you can’t bill customers regularly for the products or services they use.
Payment processing, payment reminders, and changes to customer information are all handled effortlessly by billing software. It also constantly checks to ensure that your customers’ payment methods are up-to-date, lowering the chance that a payment will be late because a credit card has expired.
It also lets customers take care of themselves by connecting to your website, mobile app, or billing portal and letting them see, handle, and change their payment methods. It also gives them access to their payment records, which makes things more transparent and can help avoid misunderstandings.
Clear terms for payments
Your customers will have difficulty making payments if you don’t have a clear payment policy and an easy-to-use billing system. Sometimes, they may not even know.
There are a few rules you should follow to make payment terms clear:
Write down how you want to be paid in a written agreement, contract, or invoice.
Be clear about the payment terms, including the amount that’s due, when it’s due, the payment methods taken, and any fees or rewards for paying early.
Ensure everyone knows how you’ll be paid before signing a deal or providing services.
Follow the same payment terms for all clients and deals unless you’ve expressly agreed to different terms (for example, with long-term clients).
Set up clear steps for following up on late payments, such as sending reminders and what to do if the payment is still not made when due.
Give your customers a way to talk to you about payment terms and ask questions.
Some customers will have differences, like payment plans for more extensive sales or customers who stay with the business for a long time. But in general, ensuring customers understand the payment terms and procedures will help keep them from being late and ensure they feel like they’re getting a good deal.
Send reminders to pay
For example, in your billing software, you can set up automatic payment notes to help your business get paid more quickly. When a customer’s payment or sign-up date is approaching, the software will send them an email or text message to tell them to make the payment.
It’s an easy way to let customers know when they need to pay, especially for services that are based on subscriptions. It also makes it less likely that someone will break the law because they forgot or didn’t understand.
Talk to your customers.
Two things make communication necessary:
When you talk to your customers openly, you build better relationships. This makes them more likely to pay you on time. Aside from that, they are more likely to fix any problems holding up payment as soon as possible.
Keeping in touch with your customers makes spotting possible debtors early and taking action easier. It’s better to deal with a late payment early rather than later, as this will save you time and money and keep your customer turnover low.
As was already said, a billing tool can help you automate some of this. But you can also send a more personal letter to get in touch. Also, you should have a way to build and manage relationships with customers so they don’t end up with an outstanding amount too often.
When it’s necessary, include account managers.
You could send the debt to a collection agency or take other harsh actions, but first, have an account manager try to talk to the buyer. Since they’re in charge of the customer connection, they know more about the customer’s payment history and how they behave.
If a customer has been using your product and paying on time but suddenly stops replying or paying, there may be a problem you’re not seeing. Having an account manager help you find and fix these problems can prevent them from worsening. Of course, that also means you won’t hurt the bond.
What are the best ways to collect on past-due accounts?
Being firm, professional, and understanding are all important things to remember when trying to collect past-due bills.
Take a look at these best practices:
Step in early. The sooner you take action, the more likely you will be able to collect. Early warnings can often fix simple mistakes or oversights.
Be clear when you talk. Always be polite and clear when you talk to people. Ensure the customer knows how much they owe, when the payment was due, and if any late fees or interest have been added.
Write down everything. Keep careful records of all conversations and actions involving the past-due account.
Show that you understand. Try to understand the debtor’s position. It’s possible to have money problems, and showing understanding can help people work together. Make them an offer to help you find a way out, like a payment plan.
Be willing to talk about payment plans. Demanding a lump sum that the debtor might not be able to pay can be less successful than letting them pay in installments.
Learn the rules. Learn about the rules in your area that govern collecting debts. This includes knowing what actions are okay and what actions are harassing or breaking the law.
If your collection attempts don’t work, you might want to hire a third-party collection agency. Make sure the service has a good reputation and honestly collects debts.
Tell the person who owes you money if the bill will be sent to credit bureaus. The possible effect on their credit score can sometimes push them to pay.
Only go to court as a last option. But think about the cost and the chance of healing before going ahead.
Please make sure that your collection team is well-trained. They should know the rules your business follows and what the law says about collecting debts.
