Getting clients to pay invoices on time can be tricky. As a business owner, you’d rather be paid sooner than later, as the longer your clients take to pay, the greater your working capital requirements will be. Following these six tips will enable you to collect payments faster from your customers.
- Automate invoicing: This prevents your invoices from being misplaced in the mail, and ensures that customers are reminded of their overdue payment. Sage Cloud, FreshBooks, and Zoho Invoice are popular accounting/invoice systems for small businesses. Automated invoicing relieves you of having to remind your customers of their overdue payments, and provides the customer with online payment methods that are convenient and quick.
- Positive Incentives: Built-in incentives can be used as an invoicing strategy to encourage early payment. This should be used sparingly, but an example is providing a reward for paying early – such as a discount or coupon. Positive incentives are a good way to build positive business relationships with new clients and encourage timely payments.
- Penalties and Fees: In addition for incentives to pay early, it is crucial to set incentives to not pay late as well. Late fees or penalties can be used as benchmarks to provide a deadline for your clients’ payments and often invokes a higher response rate than positive incentives. You should avoid creating overly harsh penalties that cause you to lose business, but also be looking to establish an honest business relationship where late payment is unacceptable.
- Automatic Billing Systems: The best way to collect payments on time is an automatic/recurring billing system – which removes funds directly from a client’s bank account on an established payment schedule. This method makes payment effortless for both you and the client, as it removes the need for reminders and invoices. However, it is often the hardest method to get the client to agree to, as it requires a high degree of trust. This works best for routine and frequent transactions.
- Flexibility in Payment Method: Offering multiple methods of payment to your client creates flexibility and, hence, easier payment transactions. If you determine the method of payment does not have significant effect on cash flow, then opening your payment options creates little excuse for a customer not to pay. Examples of alternative payment methods include email money transfer and Apple Pay.
- Establish Close Business Relationships:. Clients are far more likely to pay on time if they know you personally. These clients will have a natural aversion to developing a negative reputation or breaking trust. Instructing your staff to pay close attention to nurturing these business relationships can go a long way in timely payments across client accounts.
Although not on the list, the final option that should be considered in certain circumstances is a legal route. This should be avoided as often as possible as the damage to your relationship with the client whose payment you’re pursuing will likely be irreparable. It is important to be prepared to take legal action if you have a major payment outstanding that is at a high-risk of being unpaid. In some cases, a call from a collection agency, or your lawyer, may be enough to recover an outstanding payment. In other cases, you may need to proceed with a lawsuit.
Ultimately, every business wants to be paid on time. Using these guidelines will help shorten your payment times, and minimize the risk of late payments that can negatively affect your cash flow.