Do you have a hard time getting customers to pay you on time? And if they pay late, does it sometimes make it difficult for your business to meet your payroll or other expenses?
Having trouble accounts that take a very long time to pay is a problem many small businesses face. In fact, according to statistics, about 65% of small businesses have unpaid invoices more than 60 days old.
The trickledown effect of unpaid invoices is particularly taxing to small business owners, and according to the Small Business Administration, impacts hiring, investments in business and product development, in addition to your ability to pay bills.
Luckily, there are some things that you can do to encourage customers to pay faster. Here are a few:
• One of the easiest things you can do to incentive customers to pay quickly is to offer them a 1-2% discount for cash on delivery (COD). This means that they have to pay when services are rendered or when they take delivery of products. You will take a little hit by giving them a discount, but you’ll get paid right away giving you the cash flow you need for your business.
• You can also offer customers a small discount if they pay their invoices within a short time frame, such as within 30 days of the invoice date.
• Be sure to use clear language on invoices so customers have no doubt about the terms and your expectations. They may not understand what “net 30” or “net 60” mean, for example, but they will understand when you say that “payment is due within 30 days” and so on.
• Also, make sure that customers have everything they need to provide to their accounting department to get your invoice paid. For example, some clients may require a contract number, purchase order, or tax ID to expedite payments, in addition to the invoice. Check with new clients up front before invoicing them to make sure you are giving them the details they need.
• It’s also a good idea to invoice promptly, as soon as the work is complete or product delivered rather than waiting until the end of the month. This will help alleviate delays and ensure you have a steady stream of cash coming in throughout the month.
• Just as you can incentivize customers to pay early with discounts, you can also discourage late payments by applying penalties when customers don’t pay within a set period of time. Two options are to charge a set late fee or apply a percentage-based fee that will increase over time until the invoice is paid.
• When customers are late, try calling them to remind them that money is due. And while you have them on the phone, why not offer to take a payment then and there over the phone using a credit card?
• Offer as many payment options as you can. The more options you give customers, the more convenient it is for them to pay you, and the faster they’re likely to pay.
• Offering customers the option to pay electronically via credit card, electronic bill pay through a bank or using services like PayPal means you get your money fast once the customer pays. Many cloud accounting services like FreshBooks allow you to take payments by credit card and even direct bank transfers.
