This article is part of our “Business Startup Guide” – a curated list of our articles that will get you up and running in no time!
80 percent of small businesses are struggling with late payments. When small businesses have delinquent accounts, it puts a major halt in their cash flow.
If cash is king, what are these businesses supposed to do when they’ve lost control of the money that should be coming in? No business should be put in a position where they cannot effectively manage their cash flow.
Small businesses need to put an end to late paying customers, regaining control over their cash and their financial well-being. Start preventing delinquent accounts today by following these 6 simple tricks that will make sure you get paid.
1. Be careful
Net terms are not for everyone. Plain and simple. There are some customers who you can trust to pay you and some you cannot. Your job is to become an expert in figuring out which is which.
How so? Due diligence. Know as much about a customer as you can before extending them credit. Pull their business credit report to see how they’ve financially performed in the past. Have each customer apply for credit and make your credit application specific enough that you can do quality research on credit candidates. Ask for trade references so you can see their past payment behaviors. Nothing can be more informative than knowing how a customer has operated with another creditor.
2. Be clear
Make sure your customer understands your policy. Create a written credit policy and put it in a place that is consistently visible (such as your website).
Identify the terms in which you operate with customers (30 days? 45 days?) and reference your late payment consequences. Leave no room for questions and eliminate the possibility of any “he-said, she-saids.”
Also, use clarity in your invoice wording. Don’t overwhelm them with a ton of information but be concise and to the point. Avoid general phrases like “due in three weeks” and stick with an exact due date. Use this opportunity to reiterate the details of your credit policy. You can never over-inform when it comes to extending credit.
3. Be polite
Did you know by simply adding a “please” or “thank you” to your invoice, you can increase your chances of getting paid by 5 percent? Being polite can go a long way.
Be friendly and warm in your invoices. Remember, the customer hasn’t paid late yet. By being cordial, customers will have a more positive response to your communication and you have a better chance at being atop their payment priority list.
4. Be convenient
The easier it is for people to do something the more likely they will. It’s time to embrace quicker payments methods for your customers.
Make online payments available, which will make it easier for your customer, allowing them to immediately react to any payment notice and cut out the time it takes for you to receive a check in the mail.
5. Be flexible
There are times when customers hit difficult financial spots. We’ve all been there.
You’ve been cautious when extending credit, but you didn’t see this coming (and neither did they). Sometimes it’s O.K. to work with customers whose cash is momentarily tight. You just have to be the judge in deciding if this is habitual or situational.
Don’t indulge the habit but help out those who’ve hit a rough patch. Look at offering these customers installment plans. Although you don’t receive your entire sum up front, it will allow you start receiving cash and will help guarantee that you, in the end, receive all your cash.
When you work with a customer to develop a plan that meets their needs financially and still gets cash flowing into your system, you’re saving yourself. Installment plans, in fact, are at times the difference between you getting paid or not getting paid at all. Option number 1 is always the best, even if you have to be flexible with the terms.
6. Be consistent
The thing to always remember when extending net terms is the human element. We are busy people who easily get sidetracked and easily forget. It’s not unheard of for a customer to receive an invoice, place it to the side and unintentionally allow it to get lost under a pile of papers.
Do them a favor and remind them. If it is a week before payment is due and you still haven’t received anything, don’t hesitate to send them a friendly reminder email or letter. Keeping yourself on their radar will only help increase your chances of getting paid.