For businesses large and small, one of the more stressful issues is getting paid in full and on time. With each late or partial payment, your company absorbs unnecessary risk and is limited by what it can do. If you don’t figure this issue out, you’ll find yourself stuck in a compromising position.
The Danger of Late Payments
'Unexpected delays in payments can have a catastrophic effect on businesses that have little or no cash reserves or credit to rely on,' cash flow expert Blaine Bertsch explains. 'For businesses that are paid based on invoicing for delivered goods or services, payment delays are bound to happen. Nonchalantly regarding your receivables as 'better late than never' could mean life or death to your business.'
When you don’t collect payments on time, suddenly you become a culprit of making late payments yourself. This can deteriorate your reputation with vendors, lead to delays in your supply chain, and harm the bottom line. It can also force you to make late payments to employees and contractors, which can hurt your productivity and even lead to damaged professional relationships.
The more late payments you take on, the more susceptible you become to future late payments. While they won’t admit it, your clients will begin to see you as 'weak' – or at least a company that’s easy to put on the back burner.
4 Tips for Getting Paid Faster
There are no upsides to late payments. You have to get them under control. A failure to do so will wreck your business and put a heap of unnecessary anxieties on your plate. Here are some tips for getting back on track:
1. Automate Payment Processing
When a customer has to manually go through the process of paying you, there’s always a great risk of a late payment happening. There’s just too much that can happen between the time an invoice is received and the moment a client actually writes a check or clicks the “pay” button. If you want to avoid these issues, you should automate payment processing.
A tool like SimplyBook.me allows business to accept payments right when appointments are booked, which expedites the process and eliminates the need to pester clients when they’re actually in the office. You can also just charge an appointment confirmation fee, which ensures clients show up.
If you offer a regular service to a client, you should require clients to set up recurring payments with their credit card. Again, the point is to eliminate friction and make payments effortless for everyone involved.
2. Send Invoices Right Away
Your invoicing habits have a significant impact on when you receive payments. If you’re lazy with your invoices and send them days or weeks late, you’re guaranteed late payments. If you send them too early, you might appear premature and antsy, which isn’t a good look either.
Invoices should be sent within 12-36 hours after you send the deliverable to the client. It’s also important that they’re sent to the right individual. You might interact directly with the business owner, but if he’s not the one responsible for making payment, it’s possible that the invoice will get lost in the shuffle. Find out who you’re supposed to send the invoice to and ask for confirmation upon receipt.
3. Be Clear With Terms
'According to FreshBooks, terms like net 30, net 60, etc. make a lot of sense on the business end, but customers don’t always know what they mean,' entrepreneur Meredith Wood points out. 'When you include phrasing like ‘payment due within 30 days,’ the customer immediately identifies the time frame. This is stronger than, say, due upon receipt, which gives the customer room to waffle about when the invoice was received and doesn’t offer a strict timeline.'
This illustration speaks to a larger problem of sending unclear invoices. Try to keep them as simple as possible and don’t do anything that makes the client scratch their head.
4. Offer Incentives for Early Payment
In many cases, getting paid early is worth its weight in gold. If you’re interested in getting clients to pay in advance, so that you can improve your own cash flow, consider offering incentives. A small discount of 1 or 2 percent for early payment can be just enough to get a client to move your invoice to the top of their stack.
On the other side of things, instituting a late payment fee will force your clients to take you more seriously and avoid putting your payment off in order to pay another bill.
Be Proactive About Payments
You can’t take a passive approach to collecting payments. While it’s something that you feel should happen on its own, history shows that clients do miss payments from time to time - some habitually - and it’s ultimately your job to ensure they follow through on their contractual obligations. The tips outlined in this article should help you get on track.