Getting Slow Payers to Pay On TimeSeptember 9, 2019 September 1, 2019 /
Your business cash flow is one of the critical factors in your overall success, and nothing hampers cash flow more than accounts receivable that are in arrears.
Your slow payers often cost you. For example, perhaps you have to run up credit to pay bills because they haven’t paid you on time. Even if you’re able to manage with the cash that you have, you can waste a lot of time chasing up late accounts.
It can be an uncomfortable subject for many people, but you simply have to find an effective way to get those slow responders to start paying on time. Here are some of the top ways to make sure they do:
Invoice accurately and on time
First things first, if your back-office operations are in disarray and invoices don’t get sent out on time, it’s more than likely that you won’t get paid on time either. If you seem to be in no hurry to invoice, clients will often assume you’re not in a hurry to receive the payment.
Besides that, when you bill more often and on time, the size of the bill doesn’t seem so onerous to the client. When you forget to invoice last month then casually tack it onto this month’s invoice, the amount can seem like a mountain to the client and you might not be paid on time.
Secondly, have a good system and excellent staff who ensure that invoices are accurate. If you over-charge, then payments will be held up as clients dispute the invoice. If you under-charge, you’re going to waste more time re-invoicing with the correct amount.
Make your payment terms clear
Is that slow payer delaying the process deliberately, or simply because the payment terms weren’t made clear to them? It’s common practice in business to make payments as they are due in order to maximize cash flow. If your payment terms haven’t been spelled out, then you will have clients who drag it out as long as possible.
It’s important to go over the terms of your invoicing at the beginning of any contract. Be transparent about what you expect and what the client can expect from you. If clients know from the outset what their payment schedule will look like, you leave no room for confusion or excuses to delay payment.
When clients know your terms, ensure that you stick with them. If you have a tendency to let certain clients become the exception, it can be a slippery slope toward constant late payments and attempts to take advantage of you. It only becomes a habit if you allow it — be firm with your terms.Always set clear payment terms with clients before starting work Click To Tweet
Ensure invoices are sent to the right person
You might expect that invoices will easily be passed through the correct channels within a company, but that’s often not the case. In larger companies, sometimes getting paid hinges on you sending the invoice to the right person; otherwise it disappears into the void.
Sometimes the main contact you deal with is not the same person who is in charge of paying invoices. At the beginning of your relationship, clarify the correct addressee for your invoices. It’s not uncommon to be bounced around for months trying to get invoices paid by large companies.
Write late fees into your contracts
What do people hate paying more than their bills? Extra fees added on because they were late making payment.
A formal contract should always be used for your business dealings, but it’s even more important if you want to define clear payment terms and penalties. The late payment fees are up to you — many companies often work them out by charging a percentage of the invoice relative to a set number of days overdue. For example, for a NET 30 invoice, you might charge 5% of the invoice at day 31, then another 5% on top of that at day 41 without payment.
Sometimes people balk at the idea of imposing late fees because they worry it may cost them clients. Just remember, if someone hasn’t paid, they’re not really a client. Your utility companies and other vital services will automatically charge you extra if you’re late, so why not do the same thing?
On the flip side, sometimes offering an incentive for early payment might be worth the initial dent to your bottom line. For example, some companies might offer a 5% discount if the invoice is paid before a certain date.
Offer multiple payment options
If your clients are limited to one payment method, it can automatically make it more difficult for them to pay. For example, someone might want to pay for a service immediately, but find out that the provider only accepts checks. Any clients who don’t have a checkbook will have to order one from their bank which, of course, can take several days to arrive. Imposing narrow restrictions on payment can create barriers that may not be entirely necessary.
On the other hand, when you offer a range of payment options the client has no excuse. They can choose the method which is best suited to them. Most good invoicing systems will have a simple process in place for payment by credit card, by bank transfer, by check or through a service like Paypal.
Follow-up aging accounts
If that NET 30 invoice reaches day 31 without payment, a prompt and polite follow-up is definitely appropriate. Sometimes the late payment is just an oversight by the client and they’ll get onto it right away with the reminder.
Being polite is definitely the key here! If you use a tone that comes across sounding like collections or enforcement, it will often create conflict. Sometimes your late payers are trying to take advantage of you, but other times someone simply forgot. Gentle reminders are to be expected, and they help to demonstrate your professionalism.
Some invoicing systems will automatically send polite reminders of accounts that are due. Take advantage of these features, but don’t just leave aging accounts up to automation. If payment is really dragging out, then you may need to pick up the phone and talk to someone. The more on top of it you are, the better precedent you set for any future dealings.
Use cloud-based software
Today’s cloud-based accounting software offers several advantages over relying on print and the postal service. First of all, you can set your accounts up in the system so that you are reminded to send invoices when they are due. This is especially important if you’re working on the sort of project that has milestone payments (such as in the construction industry).
Secondly, most good cloud software will allow you to set up reminders that go out to the client before the payment is due. If they get an email reminding them an invoice is due in three days, they’re more likely to pay it right then so that they won’t forget.
Thirdly, most cloud-based tools easily facilitate online payment of invoices. This is one of the simplest and most timely methods a client can use so it’s generally in your favor to offer the option.
Lastly, accounting software makes it easy for you to run reports and see any outstanding accounts right away. When the process of identifying delinquent accounts is made easy, it’s a simpler task for you to follow up with them.
Build good relationships with your clients
We left this point until last, but it just may be one of the most important things you can do to get slow payers reimbursing you on time. When you build good relationships with clients, they feel valued and are more likely to pull their weight in preserving the relationship.
Maintaining the relationship from their side generally involves things like making payments on time! When people feel like they know you, they don’t want to let you down and risk losing the relationship. The principle of reciprocity comes into play — you do good things for them and they want to return the favor.
At the same time, it’s often more comfortable for you to follow up with someone with whom you’ve already established a rapport. You can send a quick message and usually know that it will be received as you intended it.
Consider the small details whenever you find yourself needing to follow-up on slow payment. Ensure that invoices are clear and easy to follow, or that they’re sent during the day when they’re more likely to be promptly seen.
In the end, it’s as important to manage your accounts receivable as it is to deal with any other key part of your business. Getting paid on time is what gives you reliable cash flow and helps your business to thrive.