Late payments are an ongoing problem that spans history. They have become more prevalent in today's economy, especially for SMEs. Research shows that 87% of all businesses are typically paid late (Chaser, 2022). SMEs are particularly vulnerable to late payments and often find it difficult to bounce back from the resulting setbacks.
In fact, late payments are a primary reason why many SMEs fail. Shockingly, research from the FSB reveals that around 50,000 businesses in the UK go insolvent every year due to delayed invoice payments.
Being on top of your accounts receivables and getting invoices paid on time have never been more important. But, it can be difficult for businesses to know where to focus their time and efforts when it comes to credit control. That’s where the late payment predictor comes into play.
With the late payment predictor, you and your team can easily see which customer invoices are likely to be paid late, and take preventive action to ensure timely payments.
What is the late payment predictor and how does it work?
The purpose of a late payment predictor is to provide businesses with an assessment of the risk associated with a particular customer or borrower and empower them to make smart and proactive credit control decisions.
The late payment predictor anticipates the likelihood of your customer invoices being paid late. It takes into consideration your customer's previous payment behaviour and predicts their future payment behaviour on their due invoices.
The accuracy and effectiveness of a late payment predictor depend on the quality and relevance of the data used, the sophistication of the predictive models, and the specific variables considered.
This predictor takes into consideration the following when assessing the probability of your payment being made late.
- Invoice due date
- Invoice value
- Recent and historical payment behaviour and invoice details
- Number of invoices paid late most recently and historically
According to the criteria mentioned, your due invoices will be categorised as low, medium, or high-risk. Additionally, you'll see a percentage score between 0 and 100%. A 0% score means it's highly unlikely for the invoice to be paid late, while a 100% score indicates a high risk of late payment.
If you already use Chaser, view the Help Centre article on the late payment predictor to learn more about how it’s set up in Chaser.
Benefits of the late payment predictor
Get invoices paid on time
One of the key benefits of the late payment predictor is its ability to help your business get invoices paid on time. When you know which of your invoices are likely to be paid late, you can take proactive measures to ensure prompt payment. You can send early before-due reminders and communicate directly with customers to address any potential issues that may lead to delays. This targeted approach significantly increases the chances of getting your invoices paid on time, improving your cash flow and reducing the need for prolonged follow-ups or collections efforts.
Chaser’s late payment predictor enables you to save valuable time by tailoring your collections approach and process. Instead of treating all customers equally, you can focus your time and resources on those who are more likely to pay late. By identifying high-risk invoices, you can allocate your efforts accordingly, implementing proactive measures and personalised communication to address potential payment delays. This targeted approach eliminates the need for uniform, time-consuming collections efforts for all customers, allowing you to streamline your processes and achieve better overall efficiency.
Improve cash flow
Late payments can severely impact your business's cash flow, leading to financial strain and affecting your ability to pay suppliers, staff salaries or invest in the growth of your business. However, with the help of a late payment predictor, you can reduce the negative effects of late payments and improve your cash flow. As mentioned, by identifying invoices or customers that are likely to pay you late, you can take proactive steps to minimise this risk. Timely payments from your customers contribute to a healthier cash flow, reduce your reliance on credit or external financing and provide your business with more stability and financial flexibility.
6 reasons to use the late payment predictor in your accounts receivable process
1. Prioritise your collection efforts
By seeing which invoices are likely to be paid late, your businesses can allocate your resources more efficiently and ensure to focus efforts on encouraging high-risk customers to pay on time, instead of spending equal time and effort on all invoices.
With the insights provided by the late payment predictor, your business can categorise invoices into different priority levels based on their likelihood of late payment. High-risk invoices, flagged as more likely to be paid late, can be given top priority, and by targeting these invoices first, your business can take measures to prevent potential delays and increase the overall chances of timely payment.
2. Tailor your approach to ensure timely payments from all your customers
For invoices flagged as having a higher risk of late payment, your businesses can take proactive measures to ensure prompt payment. This may include sending several before-due reminders, giving your customer a quick phone call and having them confirm that payment will be made by the due date, and offering payment plans if necessary.
On the other hand, for invoices with a lower risk of late payment, your business can adopt a more lenient approach and wait to send payment reminders until the invoice is approaching the due date, or wait till it potentially passes its due date. By tailoring your collections strategy to each specific invoice, you can improve your collections efforts. You and your team can focus more of your time and energy on invoices that need immediate attention while spending less effort on invoices that are likely to be paid on time.
3. Improve your customer relationships
Proactively addressing late payment risks can help foster stronger customer relationships. By engaging in open and transparent communication with customers who have invoices marked as high-risk to be paid late, your business can work collaboratively with customers to find mutually beneficial solutions, such as agreeing on a payment plan. This proactive approach can help further build trust and loyalty with your customers.
4. Understand your risk
By seeing and understanding which invoices are likely to be paid late, your business can easily get an overview of your high-risk customers and invoices. This knowledge allows you to make informed decisions about credit terms, payment expectations, and resource allocation.
5. Increase your operational efficiency
By using the late payment predictor, your business can streamline its accounts receivable process, leading to increased operational efficiency. Your business can reduce the time and resources spent sending before-due reminders and chasing payments from customers who consistently pay on time by concentrating its collection efforts on customers with a higher probability of late payments. This allows the accounts receivable team to allocate their efforts more effectively, resulting in improved productivity and cost savings.
6. Effectively set and adjust your customer's credit limits
A late payment predictor can provide valuable insights into a customer's payment behaviour, allowing your business to set appropriate credit limits and make necessary adjustments for future sales. Additionally, as your customer payment behaviour can change over time, the late payment predictor can be a valuable tool in regularly reviewing and adjusting your customers’ credit limits to reflect any shifts in their financial circumstances. This helps your business strike the right balance between granting credit to support sales growth and mitigating the risk of late or non-payments, ultimately safeguarding your financial stability.
How to get started with the late payment predictor?
In order to use the late payment predictor, you need to have an active Chaser account. All Chaser users get access to the late payment predictor and can use it to optimise their accounts receivable process and get invoices paid on time. If you’re not already a Chaser user, please follow this link to take out a 14-day free trial.