Editor’s Note: A version of this post was originally published in August 2011. It has been updated for accurateness and completeness.
If you are like many small business owners, cash flow is one of your primary concerns.
The process of billing customers is a simple one on paper
- Bill in a timely manner
- Communicate how much is due
- Communicate when it’s due
- Let them know how to pay you
But for many small business owners, it doesn’t feel simple when their customers aren’t paying in a timely manner and frequently falling way past due.
To help you get paid faster, these advanced tips will stop payment delays, give your customers a better payments experience, and help your bills float to the top of the pile when you customer’s money is scarce.
Ask your customer, “How would you like to pay for that?”
It’s a question we commonly hear at the retail counter of a large store, but many service businesses never ask this question. In most cases small businesses have their set billing process and that’s it, regardless of whether or not it’s a preferred payment method for their customers. However, the more options you can offer your customer to pay you, the better chance you have of getting paid fast. This includes anything from:
- The type of payment you accept (cash, check, credit card, bank transfer, etc.)
- To the timing of the payment (pay at the point of service, pay over the phone, or through an invoice
- The flexibility of payment (paying on a recurring basis, or through an automatic payment plan)
If you give your customer a choice and provide them with some control in the payments process so they can pay you in the way that works best for them, you’ll be surprised by the speed in which you get paid.
Reduce all points of friction in the payments process
Any step that requires extra effort on the customer’s part is a likely source of payment delay. Let’s examine the many points of friction involved in mailing and receiving payment for a paper invoice:
- Type up the invoice -> print it -> put it into an envelope -> put a stamp on it -> get it to the mailbox
- The postal mail service needs a few days to deliver the paper invoice to your customer.
- Your customer then needs to retrieve the invoice from their mailbox.
- The person responsible for paying the bills needs to read the invoice. Often times it’s not the person who retrieves the mail that is the actual bill payer. So there is frequently another delay here with the envelope or invoice moving around a few different piles in a household or business before it gets to the right person.
- Your customer needs to find their checkbook and pen to write out a check to you. Often people only sit down to do this task once per month.
- Your customer must find a return envelope and a stamp to send the check back to you.
- Your customer needs to make it to the mailbox to get the invoice back in the mail to you.
- You now need to wait the extra days for the postal service to deliver your check.
It’s an exhausting process. A much faster alternative is to use electronic invoicing instead, so you can enter an invoice online, have it emailed to your customer who can then make a payment to you online. Using an electronic process that eliminates the points of friction can speed up payments by 20%.
Collect payment at the time of service
Find ways to collect payment at the time of service, rather than sending a bill to your customer after the service has been provided. It’s funny to think about purchasing something at a retail store, leaving with your purchase and then receiving an invoice in the mail a few days later. With all the options available to businesses to collect payment, no business – even service-related businesses – should have to send an invoice unless the customer explicitly requests it.
- If you are at a location with a customer, use your mobile phone to collect the payment.
- If you are taking an order over the phone, take your customer’s credit card number and process the transaction immediately.
- If you are selling online, collect payment from there.
Use payment plans
Sometimes customers aren’t able to pay up the full amount at the time of service, or when a payment is due. Rather than continually battling for the full payment – offer them a payment plan to work down the balance. It’s best to automate a payment plan to charge a customer’s credit card or bank account so that each payment isn’t a battle.
Automate, automate, automate
Some simple automation steps can not only make payments speedy, but also save you and your customer a ton of time. Some of the most impactful automation tactics include:
- Storing your customer’s card on file so that you can recharge them with the click of a button
- Setting up recurring billing schedules to automatically charge any recurring fees
- Enabling online invoice processing so that your customer can pay you anytime using a payment method that works best for them
- Selling your services or products online: through your website, social media, and email using an online store
The carrot & the stick.
Not matter how flexible and instant the payments process is, there will always have customers who simply do not have the funds to pay their bills. In this case, it’s best to have a strategy to make sure your bill floats to the top of the pile to get paid first whenever the customer does have funds available.
Using a combination of carrots and sticks is very effective:
- For the carrot, offer your customer a reward (usually a percentage discount) if they pay you early before the due date.
- For the stick, utilize late payment penalties if a payment is not received by the due date (can be done in the form of a flat fee or percentage penalty). Make sure your late penalty continues to increase over time so motivation to get you paid stays strong.