Slow-paying customers have a huge impact on your business’s profit margins. Here are simple steps every small business owner can take to get paid on time.
Why getting paid on time matters more than you might think
When customers don’t pay on time, the impact can be far-reaching: you could have trouble paying your vendors on time, you may find it difficult to purchase materials, and you may begin leaning on costly credit cards that can hurt you even more. This downward cycle can quickly snowball into an avalanche, which could bury your business.
As a small business owner you may have more flexibility, and often a more relaxed relationship with your customers, but you still have to focus on maintaining a healthy cash flow. While you may not want to feel like a bill collector, there are a number of useful strategies you can employ that give you more control over this critical part of your business.
How to get paid on time without being pushy
You may worry that reminding customers to pay you will alienate them. When you don’t have a lot of customers, you don’t want to risk losing a single one. But losing one or two slow payers may be a blessing in disguise. After all, do you want to work for customers who don’t want to pay you?
Weed out the bad apples with smart billing techniques:
- Quick invoicing: The best time to send an invoice is immediately after completion of the job. Even better is submitting the invoice while you’re still with the customer so you can review it with them and answer any questions. That will ensure the work is fresh on everyone’s mind and you’re minimizing the back and forth that so commonly slows payment down.
- Make it digital: Ditch the paper for faster, more streamlined invoicing. Business owners who invoice and collect payments online get paid an average of two weeks faster than those who don’t. Going digital means you can send an invoice straight to your customer’s inbox. Consequently, it gives them a fast and painless way to pay online, straight from the invoice itself.
- Automatic payment reminders: When you use an invoicing app, you can easily set up reminders to automatically nudge your customers ahead of the payment deadline. Your customer will appreciate the professional reminder, and because it’s automatically generated, you don’t have to worry about looking pushy.
The real key to getting paid: Making it almost too easy
Your customers also have busy lives. Asking them to take even the smallest step, like putting a check in the mail, or opening their banking app to send you money, can land your invoice in the “too hard” basket. The simpler you can make the process for both you and your customers, the faster you’ll get paid.
To simplify payment, try these tools and tips:
- Accept a range of payment options: Giving your customers more ways to pay gives them less of a reason to delay payment. It’s now easy and affordable for businesses of every size to meet (and even beat) customer expectations by allowing payment by debit card, credit card, and even contactless payment options like Apple Pay. Online payments often carry a small fee, but at least you know the money will be there.
- Use crystal clear payment terms: Payment terms vary from business to business, so it’s essential to clearly state yours in a way that can’t be misconstrued. Opt for clear language (i.e., “Due in 14 days”) and spell it out front and center on your invoice. Discuss the terms when you close the deal to ensure they don’t miss it. You can also communicate any late fees at that time.
- Reward early payments: Entice and hold on to quick-paying customers by offering them discounts for early payment. Check your industry to see what’s standard, and consider whether the customer has paid on time before. An example: offer a two percent discount if paid within ten days.
What if you’re still not getting paid on time?
Chances are, you will run across a customer who won’t pay on time. Whether it’s intentional or not, you have to take action because your business is at stake. Always start with a gentle reminder via phone. Be calm, courteous and professional in reminding them that their payment is overdue. Give customers the benefit of the doubt before assuming the worst.
If they need help, you can always consider working out a payment plan either before or after the job is done. Just make sure everything is documented and signed, so there’s evidence of an agreement if payment never comes.
If the customer still doesn’t pay, you have a few options. You can hire a collections agency, a lawyer or file a suit in small claims court. If any of those things are more costly than the balance owed, it’s probably better to cut your losses and erase that customer from your client list.
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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.