Wish you could wave a magic wand and get your customers to pay on time? Or that a check to pay off a delinquent account would show up in your mailbox?
The Headache of Late Payments
You’re not alone. Delayed receivables are a significant problem for small business owners everywhere. A survey conducted by Rocket Lawyer, found that 1 in 4 companies have trouble collecting payments from customers, and 43 percent have customers who are more than 90 days late on payments.
When clients don’t pay for goods and services in a timely manner, small business owners struggle. A lack of cash flow makes it difficult to pay employees, buy more inventory, and invest in your company.
Luckily, there are ways to keep your customers happy and still get paid for services rendered. Here are some creative tips that will improve your accounts receivable processes and help you get paid in full and on time.
Setting Your Payment Terms
Offer Different Payment Methods
If you’ve been waiting for checks to arrive by mail, consider adding more choices to the payment methods you accept. Instead of accepting only checks, let customers pay by credit card or through a service like PayPal. They may be more likely to pay in full if they don’t have to come up with the cash to pay your invoice. Yes, you’ll likely pay a transaction fee, but it might be worth the trade-off.
Offer Payment Plans
A customer who can’t pay a lump sum may be able to pay a portion each month. If your cash flow allows, consider letting the customer make installment payments until the debt is paid. For example, if a customer owes you $2,500, allow them to pay $500 per month for five months. Getting some income each month is much better than getting nothing at all.
Don’t wait until the service has been provided to send an invoice for payment in full. Ask for a deposit upfront. Even collecting 25 percent on the front end will put money in your bank account and lessen the amount your customer must pay after the service is provided.
Encourage clients to pay on time with a financial incentive. For example, offer a five percent discount if the balance is paid in full within a set time frame. An offer like this could mean real money to customers with large balances.
Change Payment Terms
If you have a customer who is habitually late with payments, don’t extend them a long payment window. Change your invoice to state that payment is due upon receipt. Or require the customer to pay in full before services are rendered.
Sending the Bill
Send Invoices Quickly
Use an invoicing software to help you organize, send, and keep track of invoices. The right software will make it easy to send invoices quickly as soon as you’ve completed the work. Not sure which software is right for you? You can research software options and see how other customers rated them.
Send a Copy Via Email, Too
Snail mail takes a little longer to reach customers so send an electronic version the same day the paper copy goes in the mail. That way, if your customer has questions about the bill or needs to work out a payment arrangement, the process starts a few days earlier.
Keep Your Customers Happy
Happy customers are more likely to pay on time. There are small things you can do to let your customers know that you value their business and your relationship. From hand-written thank you notes to engaging with your customers on social media, it doesn’t take much to remind customers that their business is important to you.
Send Reminder Letters
Form letters are a polite way to remind customers that payments are due. Your customers are busy and may have simply overlooked an invoice. Send a form letter a few days before an invoice is due to spur action. And since it’s a form letter, customers won’t take it personally.
End the letter with an offer to discuss the payment if necessary. That way, a customer has an “out” if they’re having trouble making the payment and will be prompted to call to talk about a payment plan.
The longer you wait to make contact with your customer regarding a missed payment, the harder it will be to collect. As soon as they miss a payment, give them a call to find out what’s going on.
Make note of when you contact customers regarding payment. Keep dated copies of physical correspondence. Note when you spoke by phone or in person. In the event you must take legal action for nonpayment, this documentation will come in handy.
Stay Calm and Professional
If you want a customer’s repeat business, you don’t want to be overly confrontational when discussing payments. Keep conversations calm and amiable, but make sure the customer understands that you’re not taking the situation lightly. And remember, as a small business owner, you’re very likely to run into these people in your community.
Talk to Your Attorney
Start by talking to your attorney about your options. They can help you determine the best option for your specific type of business and situation. If you don’t have an attorney for your business, here are six additional reasons you might need one as a small business owner.
Hire a Collection Agency
If you don’t go the legal route, consider hiring a collection agency. You can expect to pay the agency a percentage of what is recovered. In some cases, collection agencies will outright buy a portion of your outstanding receivables and then try to collect the money themselves. Here’s what you need to know about working with a collection agency.
Getting paid on time and in full is challenging, but not impossible. With these tips, you’ll improve your accounts receivable process and your cash flow.
Our mission at Swift Capital is to unleash the potential of every small business by providing them with fair and convenient access to working capital. We harness data and technology alongside personalized human expertise to see the true potential in every business. Did you like this post? Tell us what you’d like to see on our blog. Email us at [email protected]