The simple act of getting paid can take up a big chunk of small business owner’s time while pushing stress levels to new highs. Aside from exploring funding options to help with cash flow problems, businesses can put safeguards in place to stop wasting time on chasing down payments. With the time they regain, they’ll be able to do more business development.
Just one client not paying your invoice can make your days challenging. This happened to a colleague. His client wasn’t responding to phone calls or emails.
He had trouble sleeping. Anger festered. Some mornings, this lousy attitude went to work with him. He took extra care in his dealings because he didn’t want to take it out on anyone.
The turning point …
One day, he wrote an email with the subject of “Discount: Limited time only” and offered a discount on the invoice if paid within seven days.
The client replied. He apologized and explained they were short on cash. This appeased my colleague. Of course, he wanted to get paid. It was the lack of response that infuriated him.
Once he heard from the client, the wrath vanished. He left a message from time to time checking in on the client while ensuring the client didn’t forget him.
Eventually, the payment came through.
All it took was one non-responsive client to stress out my friend. He worked slower. He had to repeat tasks because he couldn’t concentrate. It interferes with the job.
Does this happen to your business? It’s hard to work on your growth strategy when constantly fighting this situation.
6 ways to actually get paid on time
Here are six ways to boost your chances of clients paying you on time.
1. Set payment terms.
Next time you work with a new client, add payment terms to the contract. Some businesses require full payment up front, which means never worrying about receivables. Another option is to have the client to pay half of the bill up front and then the rest as soon as your company delivers the product or service.
Including discounts or fees for early or late payment can motivate businesses to pay faster. How much should the discount or fee be? The general recommendation is 2 percent. To make this stick, communicate the payment terms at the start of the relationship. For existing relationships, add a note on invoices that payment is due within X number of days in big, bold writing.
2. Offer different payment options.
Some small businesses don’t like accepting credit cards because of the fees that come with using the service. You can work around this by passing on the credit card fees to your clients. What if your competitors offer payment options your company doesn’t? Poll your customers to find out their payment preferences.
According to Dun and Bradstreet, credit card users spend an average of 12 to 18 percent more when using credit cards instead of cash. There’s something psychological about handing over cash. Using credit cards makes payment look further away. With cash, people limit how much they buy knowing they can only spend what they have.
Credit cards often include rewards. Some businesses get miles or points for using their credit card, and prefer to use it as much as possible.
3. Stick to schedule.
For monthly bills, send invoices on the same day every month. For products, hand out the invoices when you deliver the product. As soon as a payment is late, follow up right away.
If clients say they can’t pay, don’t let it go. Don’t let the famous song convince you otherwise. This is the one time not to let it go. Ask for a date they can commit to pay.
4. Withhold products or services.
When a client hasn’t paid or continues to pay late, stop providing the product or service until you’ve received payment. Maybe it’s time to drop the client.
5. Use a collections agency.
When all else fails, consider working with a collections agency. The thought of it may bother you. Maybe it’s because of their reputation. However, they do this every day and know how to chase payments.
Would you rather not get paid? Or would you rather do the awkward thing of working with a collections agency and get paid? In any case, if the client is being difficult about payment, does it really matter if you use a collections agency? Perhaps, it’s time to fire the client?
6. Opt for accounts receivable financing.
Also known as invoice financing, this can be a better option than a collections agency for one reason: you get your money faster. Even if a collections agency can get the client to pay up on the first call, it could take time before the payment actually reaches your bank account.
A factor is a financial services company that provides accounts receivable financing. Finding the right one can make a big difference for your business. Some factors can wire you the money within a day of your creating the invoices.
Some factors will take responsibility for a non-paid invoice. Others pass on that responsibility to the client.
Once you’ve signed up for accounts receivable financing, it can be your Plan B whenever you’re in need of cash. Some factors don’t require you to finance all invoices through them. This lets you be in control of which invoices they cover. You may be able to submit one invoice to the factor and never need them again.
Give these options a try. Who knows? Maybe you’ll get to take a vacation and enjoy more time off.
What other ways can you ensure clients pay on time? What are some things to avoid when it comes to invoices and payment?
Image source: Province of British Columbia