Getting Paid Late? Try These 6 Tips
It’s more than a simple inconvenience when customers fail to pay their bills on time. Late payments can wreak havoc with detailed cash-flow projections, limiting the amount of money you have to pay staff, vendors, and other business expenses. In a worst-case scenario, you may need to seek out a short-term loan to meet your own obligations. If your business is not being paid on time, consider adopting these six practices aimed at discouraging missed payments: Tweet This
1. Offer a Discount for Early Payments
Most customers love saving money, so offering a modest discount for early payments can motivate them to process your bill in a timely manner.
When invoicing customers, include two totals – one for the amount paid by the due date, and another with 5% off if you’re paid a certain number of days ahead of schedule. While you might make 5% less on these transactions, the security that comes with early payments may be worth that cost. Plus, discounts can be a compelling reason for customers to choose your business over the competition.
2. Penalize Late Payments
Running a small business is about relationships, and it can be awkward to penalize a customer for late payments. However, enforcing a clearly defined payment policy is important for every business. It sets expectations for the customer, and provides your business with powerful evidence to collect what is due. Specify an interest charge or penalty that will be added to bills that are paid late. When the customer fails to pay, notify them that their bill is now subject to these charges.
3. Require a Deposit
Obtaining a deposit from a client or customer can be a great way to manage payment risks. For example, you can require half of the total up front, with the balance due upon delivery or completion. If the job or order requires you to spend significant amounts of money, you can also ask that the balance be paid in full before work begins.
4. Set Dispute Resolution Terms
Recovering bad debts can be costly for business owners. You may be able to avoid court by requiring customers to sign arbitration agreements. These clauses specify that, should the customer fail to pay their bills, an impartial arbitrator will help settle the dispute. Ask your lawyer to provide the language for an enforceable arbitration agreement.
5. Build Relationships With Your Customers
It can be all too easy to set an invoice aside when it just seems like a piece of paper or an email. However, building a rapport with your customers can help them put a face to your bills. A congenial relationship might move your invoice to the top of their inbox. At the very least, they may reach out personally if they know a payment will be missed. Of course, in doing so, it’s still important to maintain strict boundaries to ensure the customer is not trying to take advantage of your generosity.
6. Negotiate with Trusted Customers
In some cases, your customers may actually be experiencing a situation that is affecting their ability to pay. In times such as this, negotiating an extension or waiving penalties may help get you paid and preserve the business relationship. A little understanding on your part may prevent a lot of stress for both of you. This flexibility is at your discretion, and should be based upon what you know about the business and its past payment habits.
You can better understand another company’s payment practices by accessing its business credit scores and ratings. Dun & Bradstreet considers past payment experiences when making many of the calculations that end up in a business’s credit file. Dun & Bradstreet offers business credit monitoring tools tailored to companies of all sizes. It can be helpful for a business owner to know when a customer may be experiencing financial stress, or to see that a prospective client has failed to pay other vendors.
While monitoring a business’s credit can’t guarantee that you’ll get paid, it can help manage the risk dishonest customers present to your balance sheet.
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