Botswana SME Advice: How to Handle Late Payments

late payments

Late payments are the bane of small to medium businesses in Botswana.

For SMEs, even fairly short gaps in payment can cause serious cash-flow problems, making it impossible to pay suppliers and staff on time.

We offer a strategy and general advice on how to handle late payments from clients in Botswana.

How common are late client payments?

Global statistics on late client payments paint a bleak picture. In the 2022 Late Payments Report by Chaser HQ, it emerged that 87% of businesses were being paid after their invoices’ due date.

Marketing, advertising, and construction industries reported the most issues with late payments. As many as 60% of businesses said their invoices were paid 15 days or more late on average.

In Botswana, these numbers are likely to be even worse. Locally, it’s not just cash-strapped clients who are failing to pay invoices on time. It’s large public and government entities as well.

As Adam Jones said in an article for Hotwire, “When it comes to getting paid in full and on time, Botswana has never been a paradise for entrepreneurs.”

Impact of late payments on cash flow

Late payments can cause a significant gap in vital cash flow, making it impossible to pay employees and to cover other mission-critical costs, such as rent, materials/equipment, software, web and advertising costs, and VAT bills.

Even a short delay in settling these costs can put a business’ survival at risk. It could mean losing out on lucrative tenders or purchase orders because they can’t pay suppliers on time.

This causes a chain reaction because the suppliers can’t pay for the materials they need.

Ways to help prevent late client payments

Late payments aren’t always avoidable, but there are ways that you can help prevent late client payments by being proactive.

Set terms early in the relationship

Be clear about your terms when you start a relationship with a new client. Tell them upfront what the payment terms are and if there are penalties for late payments, so they can’t claim ignorance later.

Require deposits or up-front payments

Many businesses require a 50% deposit, or even upfront payments in full, to avoid having to chase clients to settle their invoice.

Some clients might baulk at full payment upfront, but requiring a 50% deposit is not unusual. It can help with cash-flow issues if the client doesn’t pay the invoice on the due date.

Invoice promptly

Make sure invoices are sent promptly once they’re due and the payment terms are clearly visible. A delayed invoice will give your client an excuse to delay the payment.

If this is something you struggle with, an accounts collection service might be a wise option.

Communicate openly

Communicate clearly with your clients, especially when it comes to terms of payment and invoicing. Follow up to make sure they understand the terms and that they have received their invoices on time.

Keep records of all communication

Keep a record of all communication between you and your client (and the collection service if applicable).

You can refer to this communication if the client wants to claim it wasn’t aware of the terms or that it didn’t receive the invoice before the due date.

How to handle late payments from clients

The ideal scenario is to secure payment without compromising relationships, so you don’t lose future business or attract negative word of mouth. When faced with late payments, consider these tips for dealing with them.

Double check the facts

Firstly, make sure you have all the facts. The last thing you want is to accuse a client of not paying when it has.

Make sure invoices have been sent and the information is all correct. Check bank statements to make sure the payment hasn’t gone through without notification.

Ask why the payment is late

Even with a late payment, there’s no need to fly off the handle and start making demands, especially with a long-term client who you have a good relationship with.

First ask why the payment is late. There may be a legitimate reason and you can then come to a mutually beneficial solution.

Send reminders

Even if the client is aware that it is late with the payment, you should still send regular reminders. If emails aren’t doing the trick, call on the phone.

Constant reminders make it hard for a client to claim it was an oversight. It will make it clear that you aren’t going to let it slide.

Terminate the relationship

As a last resort, a client that consistently doesn’t pay or pays very late might need to be let go. It’s damaging to your businesses to keep this kind of client on, making the business not worth the risk.

What to do if you can’t make payroll

If it looks like you’re not going to be able to make payroll, double check if there are any outstanding invoices you can chase. Alternatively, check what credit or savings are available.

Asking staff to forego their salaries is seldom fair, but management might be able to make it work so that the lower income staff can still get their wages on time.

A loan is also an option, but only if you’re sure you’ll soon be in the position to pay it back. If this is not the case, you might have to consider retrenchment or the possibility that your business is no longer viable.

What to do if you can’t pay suppliers on time

If you find yourself short and you can’t pay suppliers, be open and honest about the situation as soon as possible. The most important part is to keep a good relationship with your suppliers.

If you speak with them as soon as you become aware of an issue, you can come to an arrangement that is mutually beneficial.

A fast option for raising business funds

Because late payments are usually a temporary issue, a short-term loan is a good option for covering the gap between paying suppliers and staff, and your next cash injection.

A quick and simple way to get a short-term loan is to use an asset such as a vehicle for an asset-based loan with Lamna.

We can offer you a short-term loan based on the market value of the asset. The loan is quicker and simpler than a bank loan because it’s secured by the asset.

This is a discreet way to raise funds to bridge a temporary cash-flow shortage, like making payroll or settling other important bills.

Contact our offices in Gaborone on 71 388 088 or start the application process online. We are fully compliant with the Non-Bank Financial Institutions Regulatory Authority Act (NBFIRA).

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