I am considering instituting a formal late payment policy for our product. Our terms have always been net 30 but it is something that we never consistently enforced. As the company grows and matures, I think it is important to have a policy in place in order to treat all customers fairly and encourage prompt payment (which helps with cash flow).
We sell B-to-B SaaS and all of our payments are currently received either via check, wire or ACH. The bill varies month-to-month depending on usage / consulting fees somewhere between $600-$8000 dollars per customer.
Here some options being considered:
- Offer a discount for early or on-time payment.
- Introduce recurring credit card billing so that the customer is charged automatically each month.
- Gracefully degrade the software as the customer gets late on payment. For example. (e.g. no administrative privileges or read-only mode after 45 days late payment).
- Require an upfront deposit from customers that consistently pay late.
- Charge late fees and/or interest on the outstanding balance.
Up until now I have avoided taking credit cards and PayPal due to the high fees these transactions entail. I understand the tradeoff in terms of credit card cost vs our time cost to chase customers for payment but most pay on time and don't mind sending a check or wire. The processing fees would be 3-5% of our gross revenue for every transaction ($18-$240 per payment per customer). Likewise, to give a discount for early payment would mean at least another 5% off our current gross (another $30-$400 per payment per customer). We would almost certainly need to raise prices -- a tough proposition in these times.
Are there any other options I should consider? What kind of late payment policies have you found work well for your business? How do you handle customers that are consistently late? How about delinquent customers? At what point do you shut off the customer for non-payment and how long do you retain his data?