An article from Western Union focusing on methods for merchants to reduce late bill payments from their customers.

The article references conversations with Yogesh Oka from Edgar, Dunn & Company’s San Francisco office.

Methods to Reduce Late Payments

Help customers pay on time offering recurring payments, new payment channels and educational insights.

It’s the end of the month. Amid work and family responsibilities, your customer suddenly remembers she needs to make a payment to your company. But does she have enough money to cover it today? Or should she wait until after payday and risk incurring a late fee?

This type of panicked scenario is all too familiar for the more than 50 percent of Americans who don’t use a monthly budget, says Yogesh Oka, manager at the San Francisco office of Edgar, Dunn & Company, a payments consulting firm. These consumers submit late payments due to a combination of factors, including lack of funds, poor planning or insufficient time between when a paycheck is received and a bill is due.

While billers cannot reform personal financial habits, they can take steps to help customers make timely payments.

Send Reminders
For some customers, disorganization is the primary culprit behind late payments. When a paper bill is hidden beneath a growing pile of mail, it’s easy for these customers to forget about it. Fortunately, today’s billers can use simple tools to help their customers stay on track.

[Billers] need to be where their customers are and on the channels they’re on,” Oka says. To stay in touch with customers, Oka says billers should consider sending text or email payment reminders. These kinds of reminders yield a similar response rate as an incentive program that rewards timely payments; however, they are more cost-effective.

A mobile bill payment app is another option that many billers are exploring. If a customer receives a payment reminder, he or she can immediately make a payment via the mobile app. To prioritize security and convenience, apps should have the capability to store account information so customers can quickly authorize a payment and not have to worry about entering sensitive data remotely. The more user-friendly the app, the more likely it is that customers will use it to pay, Oka says.

Offer Automated Payments
Recurring payments are a surefire way to receive payments on time because they’re automatic, reducing the need for consumers to stay on top of the situation, says Dr. Lars Perner, assistant professor of clinical marketing at the University of Southern California.

Customers are less likely to leave an institution once enrolled in a recurring payment plan, Oka says. However, some people — particularly low-income individuals — are uncomfortable with the perceived lack of control that comes from automated payments.

For billers, the key is explaining that recurring plans can give customers more control over their cash flow. For example, a customer can time payments to coincide with his or her twice-monthly paycheck. And because recurring plans ensure payments are made on time, they can actually spare customers from expensive late fees and gaps in crucial services.

Educate Them on the Reality of Late Payments
One way to deter late payments is to educate customers about their negative impact, Perner says. For example, some consumers wait until the last minute to make a payment in an attempt to maximize the amount of interest their bank account accrues. “Consumers should be educated that the earnings on interest simply don’t stand in proportion to late fees that may result if the consumer forgets to pay in time,” Perner says.

If the biller has a monthly newsletter or other regular communication vehicles, they can use these channels to explain why it’s important to make timely payments. Then, the biller can offer solutions such as setting up reminders or opting into recurring plans.

While there is no cure-all for late payers, billers should acknowledge the reality in which they are operating. “It’s more a lack of financial literacy than anything else,” Oka says, “so billers need to do everything they can to make payments as easy and convenient as possible.”