If there’s one thing all entrepreneurs can agree on, it’s wishing their customers to pay promptly. On-time payments can help keep a business running smoothly; timely payments ensure you can keep the lights on, make investments in growth and pay yourself and your staff a salary.
Late payments, on the other hand, don’t just create gaps in cash flow, they also add to your operational headaches, taking mental energy away from more important tasks. Unfortunately, the problem is all too common.
So, what can you do to get your clients to pay even faster? And how do you make the process of getting overdue payments from clients less stressful? Follow the advice below to help shorten the time between invoicing and payment.
Invoice Right Away
Invoicing as soon as possible sets an example for your client to follow when paying you. A late invoice tells customers you may not be that concerned with getting paid promptly. This is just human psychology. Therefore, always invoice as soon as the products or services are received, which is when your customer will be expecting an invoice and paying will be top of mind. Remember that your clients can’t pay an invoice they haven’t seen. That is a very important point. This will show, in “layman terms” the effectiveness of invoicing early. Make sure customers have received invoices by requesting confirmation of receipt and following up if you don’t hear from them.
If your client disagrees with your invoice or disputes charges, that will cause a delay in payment, not to mention putting you in an awkward situation that may damage the client relationship. There are a lot of invoicing tools out in the market that can help you create a professional invoice that will avoid estimations and presumptions.
However, you should still reduce this possibility by submitting a thorough estimate before you begin a project or deliver products. The estimates should contain the same information your invoices do, including prices, deadlines and payment terms. If you can get those numbers into customers’ heads, they won’t be taken by surprise when they see your invoice.
Nothing to Doubt
Making sure the date and your payment terms are at the top of every invoice, where they cannot be missed, will also help ensure clients pay on time, which is what we are trying to achieve. In your invoice, anticipate customer questions by describing products and services in as much detail as possible (the more detail, the better), including dates that work was performed or delivered.
Using an online tool to invoice, as opposed to a paper and mail system, will allow you to track invoice payment automatically and follow up easily.
Clear Payment Terms
It’s essential to state the clearest payment terms in your invoices, including the time frame in which you expect payment to be made. The payment terms provide a starting point for any follow-up conversations and will set the stage if you need to discuss charging penalties for arrears. Thirty days (either from invoice or statement) is a typical time frame for payment in many industries
If you plan to charge interest on late payments, you should state this clearly in your payment terms. Be sure to point out the date from which interest will begin accruing. The additional cost of being behind on payment may have a large enough impact on your client’s bottom line to motivate a speedy turnaround.
Get Creative with Payment Terms
While it does not completely wipe out the problem of outstanding invoices, one of the most efficient ways to get clients to pay quicker — and smooth out cash flow — is to request payment of a portion of the full amount up front (as a deposit) with the remainder due upon delivery. This might seem like a big ask at first, but it’s actually a common and fair arrangement that can help maintain client relationships strong over the long term. Another option is to require payment when certain project milestones are reached, such as delivery of part of the project or order or when certain expenses are incurred.
You can also try another more obvious approach: Offer a discount to the client for “early” payment, such as payments within one week or before 30 days (or before the stated payment terms that you have provided the particular client). Be careful not to discount the invoice too much though: A 2% to 4% discount should be enough to get customers’ attention without raising their expectations for discounts elsewhere.
Multiple Ways to Pay
Take a page from online commerce businesses:
Accept online payments and digital payments. This will provide your client with more options to pay, therefore enticing him and making it easier for the client to pay. It’s really not that hard, it might seem like a daunting task at first, but with the introduction of technology, It’s easier than ever to set up your business to take credit cards and bank cards — for example, you can type in “credit card payment solutions” on Google and you will be presented with many local, South African, businesses that facilitate online payments by accepting major cards like Visa, MasterCard and American Express.
Payment technology is changing fast, with emerging technologies. You’ll increase your chances of prompt payment if you accept as many of these methods as possible.
Use your payment terms to determine when you should take the first step on an invoice that hasn’t been paid yet by a client. Consider sending a brief payment reminder email or make a phone call. It is important to still remain friendly at this stage as you do not want to sour the relationship. If you use payments or accounting software, take advantage of some of the features that are available to automate the payment reminder process. This can be a big time-saver and effective in gently reminding clients and staying on top of mind for upcoming payments before it becomes a bigger issue. If that doesn’t work, a phone call might be necessary. A direct conversation can get more questions answered quicker, plus speaking with your client can be helpful for building your relationship.
Should payment problems persist for a couple of months, it is very important to tackle the problem sooner rather than later. Set a schedule for subsequent communications – additional calls, emails or resending the invoices – and stick with it.
Leverage Your Products and Services – When Necessary
Your business might need your client’s payments, BUT, the client probably need your continued work just as much. It is what you call a symbiotic relationship. If you do ongoing work for a client who’s consistently falling behind on payments, be ready to withhold completed work or products – or politely refuse to do new work – until payment is received or a payment plan is established. It is more than fair to stop your service if they stop their service i.e. payment. Your clients must know that you are firm when it comes to this policy, that way, they will know in advance the repercussions of not paying you.
Collections Agency and When To Use Them
If you’ve spent months trying to follow the collection strategy that you have set from the points above, with no luck, it might be time to give up and hire a collection agency. Do your homework before taking this step and know that the agency will take a big cut out of your invoice – perhaps 20% or more of the payment. Keep in mind that if you go the collections route, you will likely bring an end to the client relationship, but it may be a necessary step if there’s no other way to get paid. After all, who wants a bad paying client.
Manage Your Client Relationship
Keeping customer relationships healthy and cordial is one of the trickiest parts of dealing with unpaid invoices. If the relationship is an important or longstanding one, will pushing back on overdue payments damage your ability to get more business? Use your instincts to decide how hard to press – but at all times keep things professional and friendly. If you can get the client to feel not just that they have to pay, but that they want to, you may see payment faster. Again, the human psychology element will come into effect.
If customers are unable to meet your payment terms today, remember that they could still be potential customers in the future. This is an important factor in analyzing your debtors’ book. Often, an invitation to return when they’re truly ready to get started will effectively keep them in your sales pipeline. Whether that happens three months from now or three years from now, they’ll remember the positive business experience they had with you and are likely to return. You always want to maintain a positive experience with your clients because a returning client is always better than a new client.
Some payment situations are an opportunity to show discretion and maybe a little empathy, especially in today’s times with the COVID-19 pandemic. If you work with a client to pay overtime or find some other way to make it easier for them to pay, they may feel that you’re not just a vendor, but a partner. This will inspire loyalty and strengthen the relationship, making your business stronger and more successful over time.