Businesses start for many different reasons, from one person’s desire to create a legacy, to another’s want of a better work/life balance and more. But the one thing all businesses owners and operators have in common is that, ultimately, we are there to make money.
No matter how good we are at what we do, or how much we enjoy running our business, we can’t continue to do it for too long if we don’t paid. This is why the old catch cry that ‘cash flow is king’ rings true for all businesses. Without the ability to cover our costs and derive an income, we face an uncertain future, and those businesses that supply goods and services on account terms (ie who don’t get paid before or at delivery) face an even larger challenge of collecting dollars.
Of course, the best way of dealing with slow or bad debts is to have none. However the reality is that this is almost impossible for any business, but there are a few simple steps you can take to get a lot closer to that desirable outcome.
Step 1: Make your terms clear
Before doing any work, tell your customer in writing what the deal is. This doesn’t have to mean a full-blown set of standard terms and conditions of supply (this is a conversation for another day). However, it is important to set understandable expectations upfront. Provide your customer a written scope of work, with a clear understanding of what they will have to pay and when.
If the nature of the task does not lend itself to a fixed dollar figure, tell them:
- How the price will be calculated – e.g. time spent or quantity of materials used;
- When you are going to invoice (at the end of the job or at intervals, such as fortnightly or monthly); and
- When you require to be paid – 7 days from invoice, 14 or 30, whatever.
It can be a good idea to stipulate that late payments attract interest, at e.g. 10% per year. You will probably never collect any interest, but it amazing how an account rendered statement showing an interest component results in rapid payment of any outstanding debt!
Step 2: Get it in writing
Always get the customer to acknowledge their acceptance of the terms of payment in writing. In this case, a return email will do.
Doing this achieves two things:
- It avoids the misunderstandings and disappointments that are a major cause of slow or disputed payment; and
- If you do get into a dispute you are well set to enforce payment, whether in the Small Claims Court, the Supreme Court, or something in between.
Step 3: Send your invoice ASAP
Upon completion of the job, or at the end of your nominated billing period, send the invoice to your customer. As the old joke says, you can’t win the lottery if you don’t buy a ticket. There will never be a more opportune time to ask for your money, especially if the customer is still pleased with the result. And if they’re not? It’s best to deal with it as soon as possible and if you have to take a hit, take it and move on.
It’s also important to send your invoices out in a timely manner because regardless of how short your invoice payment terms are (e.g. 7 days, 28 days), the clock doesn’t start ticking on this until the invoice is out the door. And whilst other commitments get in the way, it’s prudent to remember that each time you delay your invoicing, you’re essentially pushing back your payday.
Step 4: Create positive payments
Many customers will respond positively to any positive reinforcement techniques that you use to encourage early or prompt payments. This could include initiatives such as a discount on the next invoice for early payment, more products or some other type of reward.
Step 5: Make paying as easy as possible
Try make the invoice and payment process as easy and convenient as possible for your customer. Solutions could include an online invoice solution, the ability to pay online via the push of a button, payment apps and more. So wherever they are, whatever device they are on, they can easily pay your invoice.
Step 6: Know who pays you
Address the invoice to the person who pays it. Quite often this individual will be different to the person who ordered the work. If you’re unsure about who this is, give the person you know a call, find out and get their contact details.
Step 7: Follow it up
If an invoice becomes overdue, don’t hesitate to follow it up. Allow a grace period of several days, and after this passes sending a polite email to find out when you may expect payment should help move things along.
However, what happens if you do all this and still haven’t received the outstanding funds? Stay tuned, and we’ll be looking at how to best deal with customers who don’t pay in our upcoming articles!
If you would like to know more or need any assistance, feel free to contact us at Antcliffe Scott, we’d be more than happy to help!