Steady, reliable cash flow is crucial for the survival of any business – so taking steps to ensure your customers pay promptly should be a key priority.
When your customers consistently pay on time, you’ll avoid the dreaded “feast or famine” cycle. You’ll be able to pay your suppliers and employees on time – and not least of all, yourself.
Implement these ten tips now to start getting paid without delay.
1. Provide payment terms up front
Before you start working with any new customer, always provide your terms in writing. Clearly state your rates, payment due dates, and policies for late payment – including any fees incurred on balances owing.
2. Invoice immediately
If you’re currently preparing your invoices manually, switch over to Xero invoicing with automated billing. You’ll never forget to invoice a customer, and you’ll eliminate errors as you save time. The first time a customer is billed make sure the contact information on your invoice is complete to avoid delays with getting paid.
3. Follow up
Call your customer immediately when a payment is past due. Ask for the status of the invoice and if there’s anything you can do to speed up payment. Sometimes a simple change, like including a purchase order number on the invoice, can speed up getting paid.
4. Reduce terms
Net 30 payment terms are fairly standard in business, but there’s nothing stopping you from asking for payment sooner. Some business owners make payment due at Net 7 or 10; others stipulate payment is due upon receipt of invoice.
5. Reward early payers
Consider offering customers a 2% discount when they pay their invoice within ten days. In this scenario, a $1000 invoice would be reduced to $980 – not a huge loss for you, but an attractive cash-saving incentive for your customers.
6. Charge interest
As part of your terms, specify that if a customers’s payment is past due, a weekly fee of 2% will be added onto the total until funds are received in full.
7. Get paid upfront
Collect a partial deposit – or the entire amount in full – before you provide a product or service to your customers.
8. Go mobile
Forego invoicing altogether by having your customers pay on the spot with mobile debit and/or credit payments.
9. Suspend service
Stop your supply of products or services until you receive payment. With this tactic you’ll avoid the accumulation of an even greater loss with a consistently late or non-paying customer.
10. Stay on top of your debtors
Monitor your debtors on a weekly basis so you can act fast if a customer hasn’t paid on time. An Aged Accounts Receivables report is available in Xero to help you easily track outstanding invoices.
Perhaps the most important tip for encouraging prompt payment is excellent communication.
When you follow up on a late invoice, explain why it’s important to receive timely payment in order to run your business effectively. Ask when you can expect payment, and agree on a date.
If the money still isn’t forthcoming, offer to negotiate a payment schedule as a next-to-last option – before you have no choice but contact a collection agency.
Contact us email@example.com if you need help implementing any of the above. What action step will you take?