“I will sign for it now, I will pay you later.” How often have you been told this by your customers and suddenly feel like the sale you just concluded will take a lot of effort from your part to be paid? Why is it that customers are quick to buy something from you, but slow to pay for it? Why is it that my sales are high, but my cash flow is so low? Where is the money? You are not alone in asking these common questions.
Don’t despair, there are ways which will help you get paid faster. You will see that many of these methods are already applied by larger businesses and they can help you to get paid faster.
1. Make it as easy as possible for you to get paid faster.
One thing you will find in common with all customers who take long to pay is they always have an excuse. A well known popular excuse is, “cheque’s in the mail.” Create alternative methods of payment to receive the funds quicker, such as offering to collect the payment if possible. Ensure that you have your bank account details available and encourage your customers to pay via bank transfer instead. Alternatively you might also start accepting credit cards, which, whilst charging you a small percentage fee, would be more efficient than seeking payment through legal means.
2. Send monthly statements ahead of time.
Many larger businesses tend to settle invoices once a month, normally at the end of the month. It is very important therefore that you prepare and send an updated statement to the customer well ahead of this time. I would recommend sending it towards the middle of the month. On the statement be sure to highlight the overdue amount as at the end of that same month. If you are pressed for time then send the statements to the ones who owe you the most amount of money.
Follow up the email or letter you send with one or more phone calls to the accounts department (or the person which handles the payments) to confirm that they have received the statement and that they will be paying as stipulated. Don’t hesitate to call them regularly so that they know that you will not simply forget about the payment. Being early in doing this will give you some time to iron out any problems the customer might have to pay before the end of the month. Otherwise you risk the customer telling you that payment will be done in the following month, after an issue is resolved.
3. Consider a small discount for on time payments.
I know what you are thinking. If you offer any more discount you will not have made any profit. Why should you offer a discount for the customer to do what he/she was supposed to do anyway?
Think of the time you spent creating statements, replying to emails, calling the client and chasing payments. Think of what this costs your business. Think also how this time could have been spent getting new customers or making better sales. You will find that it is definitely worth an extra 2-5% discount which you could offer customers to get paid faster.
Many businesses, especially telecom providers, offer their customers something along these lines. If you sign up as a direct debit customer you are automatically given a discount on each bill. If you succeed to sign up your customers to direct debit in exchange of the discount, then you can rest assured that you will be paid on time, every time.
4. Go the other way and charge interest on late payments.
Alternatively or in conjunction with the previous point you could charge a late payment interest fee for overdue payments. The normal rates are of 6-10% p.a. If you do decide to go this way then you should have a clear note on the invoices which states that payments not settled within the agreed period (best to include this period in the note) would automatically incur a late payment fee interest (and include the rate).
Be cautious when using this option and, especially when enforcing it. When you decide to enforce it with a customer you run a big risk of losing this customer. Whilst you have every right to do this, the customer has every right to get offended too and find other suppliers. It is best to first exhaust other, friendlier options first. On the other hand, if this customer is a repeat offender then you might be better off without him/her.
Whilst is is understandable that you would want to curse the customer who delays payments, I would strongly recommend you keep a good etiquette throughout all communication with him. Once you escalate the issue with the customer it is very difficult to go back and you will be the one to suffer the most as you will not get paid faster.