Learn How Your Business Can Avoid Late Payments and Improve Cash Flow
Late payments are one of the most frustrating things about owning a business. After providing a good or service to your customer, you’re forced to wait for an indefinite amount of time until they make their payment. Without the luxury of liquid assets and a steady cash flow, the success of businesses hinges largely on the ability to get paid on time.
A recent study by PYMTS.com found that 46% of SMBs named getting paid on time the most frustrating/annoying thing related to receiving payments from customers[i].
Four Ways to Get Your Clients or Customers to Pay On Time
1. Use Recurring Billing to Automate the Collection of Payments
One of the easiest ways to get customers to pay bills and invoices on time is by setting up recurring billing. Forgotten payments are a common challenge in the business world and an online recurring billing system will help get rid of this problem.
Setting up recurring billing usually requires the following information inputted in your online billing software:
- The customer’s billing information
- The amount of each billing transaction
- The method of payment into your online billing software
Once it’s set up, every month on the chosen billing date, the billing software will automatically charge your client’s credit card or bank account and your client will instantly receive an email receipt. With recurring billing, you’re able to spend more time growing your business and less time worrying about collecting monthly payments.
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2. Send Electronic Invoices to Avoid the Delay of Paper Invoice Processing
Since recurring payments are not the right fit or appropriate for every customer, another way to get paid faster is eliminate unnecessary delay in your cash flow with email invoicing.
Sending an electronic invoice is as simple as:
- Drafting the invoice in your online payment software
- Entering customer payment information and billing amount
- Clicking “Send”
Your customer instantly receives the email invoice and can make a payment directly using a secure online payment form. Sending email invoices will help eliminate those dreaded collection conversations and better yet, you can send automated reminders when the invoice is about-to-be or is overdue.
3. Maintain a Database of Customers to Keep Track of Payment History
If business is going well, you probably have a healthy client portfolio. So healthy, in fact, that you might not be able to keep track of your customers that are paying on time and those that are consistently late. By using an online customer database, you’ll be able to track all of your customer payments in one location: no more sorting spreadsheets and files to find information.
- The Smith account has been paying three weeks late for the past six months; it might be time to make a call to their accounts payable department to discuss a new late payment penalty.
- The Johnson account has paid on time for the entire year; send them a small gift letting them know you appreciate their business, or give them 10% off the next invoice for paying on time. By keeping your customers in a database, you’ll be able to see and act on these patterns much more effectively.
4. Set Up Early Payment Incentives & Late Payment Penalties
Incentivize your customers to pay their invoice on Net30 terms by offering a 10% discount on the invoice. You would be surprised at the power a small discount has on increasing payment time. If your incentive policy is not working out as hoped, you can also implement a late payment fee. Note: do not charge a late payment fee for your company’s financial gain, but rather make it a late payment deterrent for your customer. A $10 per week late payment fee won’t increase your bottom line, but it’s a sufficient amount to encourage your customer to pay on time.
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Editor’s Note: A version of this post was originally published in January 2013 and has been revamped and updated for accuracy and completeness.