More than 30 percent of businesses say that late payments are impacting pay for the team, investments for the company, and relationships with suppliers. It can affect the cash flow of a business when customers do not pay their invoices on time and can even affect their ability to survive.
On paper, your business might look successful and like it is growing because of sales that are made but it is not until customers pay up that you cannot use that money to pay your own bills. If your business struggles getting customers to pay their invoices on time, here we will discuss some tips on how to encourage them to pay up faster.
Know Who Your Customers Are
Not every customer you have is the same. There are some that you can trust to pay you on time and there are others that you cannot. You need to become an expert in figuring out which is which. As the business owner, you have the ability to choose whether you require payment up front at the time of service or delivery, or if you issue an invoice and wait.
Before you extend any credit, find out as much as you can about the customer. Pull up their business credit report to see how they have financially performed in the past. Have every customer you have apply for credit and make your credit application specific so that you can do quality research on them. Ask for trade references so you can get an idea of what their payment behaviors have looked like in the past.
Be Clear and Specific
Identify your standard payment terms. Will it be 30 days? 45 days? In addition, spell out the consequences for late payments. Be as clear and as specific as possible and leave no room for questions and eliminate the possibility of any confusion. If you decide to offer different terms to different customers, make sure you are not saying one thing to one customer, and putting something else on your website.
Use a professional looking invoice template and be as clear as possible. Do not overwhelm your customer with too much information, being concise and straight to the point is key. Put the name of your customer on the invoice, not just the name of their company if you are selling B2B. Do not use internal jargon or vague descriptions to avoid any confusion. Whenever possible be clear with what you are looking for.
When your customer receives the invoice, you want them to understand what it is for and be able to tell who authorized the work or product purchase as fast as possible. Avoid phrases that are too general such as “due in two weeks” and instead add the exact due date on your invoice. This increases your chances of getting paid quicker because it will make it easier for the customer to know when it is due.
Adding phrases like “please” or “thank you” to your invoice goes a long way. You can increase your chances of getting paid by five percent. Be warm and friendly in your invoices. Remember, the customer has not paid late yet. Customers will have a more positive response to your communication, and you have a better chance at being atop their payment priority list by simply being cordial.
Make It Easy
The easier it is for people to pay you, the more likely they will do it. It is time to embrace quicker payments methods for your customers. The first step to take is to invoice faster. Do not send paper invoices and opt for saving the paper and lag time by emailing it to them.
Accept different forms of payment including checks, cash, credit cards, and PayPal. Make online statements available and make sure they are mobile optimized options so customers can pay right from their smartphones. Putting a link to a payment processing form in an invoice is a great way to speed up payments. The trade-off there will be credit card or processing fees but weigh the options and decide if it is a good trade-off for your business.
Put your contact information right on your invoice. Make it easier for your customers to contact you if they have a question about a bill.
There are times when customers hit difficult financial spots. Sometimes it is okay to work with customers who have tight funds. You just need to be the judge if it is a habit or not.
One option you can do is implement customer installment plans. Although you will not receive your entire sum up front, you will start to receive the cash and will help guarantee that you will receive what you are owed.
The thing to remember when extending payment terms is that people are humans who can easily forget or get sidetracked. Be consistent with friendly reminders if you have not received anything and do not hesitate to contact them. Keeping yourself accountable will help increase your chances of getting paid.
The Bottom Line
While it is not completely possible to stop receiving late payments from customers, there are several ways to reduce them. Things like being flexible with payment methods and being clear on your invoice about the due date and terms can help increase your chances of getting paid on time. If the problem is consistent with the customer, do not be afraid to contact them and learn the reason for making the late payment. You may be able to work something out together to satisfy both parties.