12 Proven Tips On How To Improve On Time Payments From Customers
PeerDive
As business owners, we can all agree that we want to get paid on time from our customers. However, late payments can jeopardize your entire business. Over 37% of all invoices are paid late, and 16% are never paid. This can create serious cash flow issues for your business if not properly dealt with.
Late payments do not just create gaps in your cash flow, but if left out of hand, they can be a logistical nightmare for your team. Our team here at PeerDive is here to help. We have put together this fantastic guide on how you can improve on-time payments from your customers.
1) Prove An Option of Payment Methods
Running any business is a challenge. The same goes for your clients. You want to ensure that you offer convenient payment methods so your customers don't need to jump through ten hoops to pay you. Offering them convenient payment options such as credit card, ACH, Paypal, etc., will allow your clients to get you paid on time with whatever method is convenient for you.
Tip: If your processing system allows, keep an active credit card on file. When the order is placed, you can immediately run the charge for the bill (upon client approval). This will drastically reduce the time you spend collecting your accounts receivable.
2) Set Up Electronic Invoicing
One of the most common reasons small businesses do not get paid on time is that their invoices arrive late to the client through the mail. By switching your invoicing system to a digital platform, clients can no longer say that they did not receive the invoice or it came late. In addition, an electronic invoicing system will allow you to track when you sent the invoice and any back and forth correspondence you might have with the client for future reference.
Depending on your payment system, they can send payment reminders to your clients. Keeping you top of mind. It is a win-win solution for both you and your clients.
3) Late Payment Fees
No matter how large the client is, there is always that possibility that they will not pay on time. The best way to avoid these situations is to implement a late payment fee in the terms and conditions of all of your invoices. An example cost could be charging a 1.5% or 2% late fee on all invoices that extend beyond a 30-day payment window.
4) Incentives For Early Payment
On the reverse side of late payments, you might encourage your clients to pay you early by offering them a discount for making their payments early. For example, you might offer them a 2% discount on their total invoice if they pay within 15 days of their invoice if offering them Net 30 payment terms. Although you might lose a small margin, you have cash in hand and do not have to run around chasing any outstanding account receivables.
5) Know When It Is Time To Sell Your Bad Debt
After months of chasing a client only to hear nothing back, it might be time to sell your bad debt and hire a debt collecting agency. Do your homework before bringing on an agency as they usually take anywhere from 30-50% of the total invoice as their fee. This could be a pliable last resort method as getting paid something is better than being paid nothing.
6) Avoid Providing Additional Services
Have a client that still owes you money, but you continue doing work for them? Use your current products or services as leverage for getting them to pay on time. If your client is constantly falling behind on their payments, be ready to withhold any future work with them until they pay their balance. Setting this expectation upfront, along with clear payment terms, will ensure that this is not a surprise to either party.
7) Don't Leave Anything To Doubt
On all of your invoicing, be sure that everything is crystal clear so they can always reference your terms at a later date if need be. Whether you just signed a new contract or are renewing one, you must summarize your payment terms on all invoices. This will be sure there are no misunderstandings and delays in payment.
Clearer phrasing on your invoice, such as "payment due within 30 days," is more evident to most customers than "net 30".
8) Ask For An Upfront Deposit
For first-time clients or larger orders, requesting a deposit upfront could be a way to guarantee that you will be paid at least for part of the job before the work is delivered. For example, you could extend terms such as 50% due upon placing the order and 50% due upon delivery. Establishing clear payment terms will help ease the tension between you and the client.
9) Offer Payment Plans
Have a client that is struggling to pay an outstanding invoice? Offering a payment plan can be a great way to ease the tension on the client's end and get you the fund you need for your work. However, payment plans can be as complicated or as simple as you want. You might also want to consider charging interest if you extend a client's payment terms.
For example, if a client owes you $3,000, you might break them up into three payments for them with a $1,000 installment due now, the next $1,000 due in 15 days, and the final $1.000 installment due in 30 days. Payment terms can help mitigate the potential of the client not paying their bill at all, and you have to hire a debt collecting agency to chase them down.
10) Shorten Your Payment Terms
58% of all Net 7 invoices are paid within 7 days, while only 40% of all Net 30 invoices are paid in the same time frame. Most clients do not mind paying on time; however, you need to be clear on those payment terms. If your business can not afford to wait more than 30 days to get paid, you want to consider shortening your payment terms to fit with your cash flow schedule.
Your payment terms should always be established before your begin any project. This way, everyone is on the same page from the start.
11) Review Your Invoices Regularly
Chasing late payments is a tedious task no business owner looks forward to. It affects not only your cash flow but your productivity that you have to spend chasing clients down to collect their invoices. The best way to deal with this potential headache is to be on top of your invoicing schedule and what invoices are due and when. If you notice that your invoices are approaching the payment term, send a reminder to the client that payment is due. This will help put you top of mind.
12) Use good Communication
Out of all of the tips mentioned above, the most important is to have good open communication with the client. Good communication means that you are more likely to get paid on time. Be clear about what you are asking the client for and when you expect to receive proper payment from them. You and the client don't want any surprises later on. You will be surprised at how far good communication skills can go!
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