Steady, reliable cash flow is crucial for the survival of any small business – so taking steps to ensure your customers make payment promptly should be a key priority.
When your clients consistently pay on time, you’ll avoid the dreaded “feast or famine” cycle. You’ll be able to pay your vendors, suppliers, and employees on time – and not least of all, yourself.
Implement these ten tips now to start getting paid without delay.
Provide payment terms up front
Before you start working with any new client, always provide your terms in writing. Clearly state your rates, due dates, and policies for late payment – including any fees incurred on balances owing.
If you’re currently preparing your invoices manually, switch over to an accounting system with automated billing. You’ll never forget to invoice a client, and you’ll eliminate errors as you save time. The first time a client is billed make sure the contact information on your invoice is complete to avoid delays with processing.
Call your customer immediately when an invoice is past due. Ask for the status of the invoice and if there’s anything you can do to speed up payment. Sometimes a simple change, like including a purchase order number on the invoice, can speed up processing.
Net 30 payment terms are fairly standard in business, but there’s nothing stopping you from asking for payment sooner. Some business owners make payment due at Net 7 or 10; others stipulate payment is due upon receipt of invoice.
Reward early payment
Consider offering customers a 2% discount when they pay their invoice within ten days. In this scenario, a $1000 invoice would be reduced to $980 – not a huge loss for you, but an attractive cash-saving incentive for your customers.
As part of your terms, specify that if a client’s invoice is past due, a weekly fee of 2% will be added onto the total until funds are received in full.
Get payment upfront
Collect a partial deposit – or the entire amount in full – before you provide a product or service to your customers.
Forego invoicing altogether by having your customers pay on the spot with mobile debit and/or credit payments.
Stop your supply of products or services until you receive payment. With this tactic you’ll avoid the accumulation of an even greater loss with a consistently late or non-paying client.
Stay on top of AR
Monitor your accounts receivable on a weekly basis so you can act fast if a customer hasn’t paid on time. An AR aging report can help you easily track outstanding invoices right in your accounting software – or create an Excel report you can track manually, if you prefer.
Perhaps the most important tip for encouraging prompt payment is excellent communication. When you follow up on a late invoice, explain why it’s important to receive timely payment in order to run your business effectively. Ask when you can expect payment, and agree on a date.
If the money still isn’t forthcoming, offer to negotiate a payment schedule as a next-to-last option – before you have no choice but contact a collection agency.
If you need help putting in place some of the above tips, contact us here.