It's one of the toughest issues every small business owner faces.
You built a stellar reputation for your business. You sold your heart out bringing in a new client. You gave that client your best work. And months later, you're still waiting to see the money in the bank.
And waiting. And waiting.
But before you assume there is nothing you can do, consider trying out one of these eight things small businesses can do to get paid faster. Maybe today will be the day!
1. Don't Underestimate the Power of Building Relationships
The responsibility to build relationships with clients isn't limited to your sales team. Developing a rapport with the folks paying your invoices can go a long way towards getting money in the door. After all, a piece of paper is easy to ignore. A friend is not.
Take the time to add a quick handwritten note on paper invoices. Send occasional thank you notes when payment is received. Even a thank you call from time to time is a great way to humanize your business and put some personality behind that official looking request for payment. By reminding your clients that their check is going to a real person, you make them more likely to show personal respect by paying on time.
2. Check New Customers' Credit Before Signing On
Chronically late payers typically aren't avoiding just one late payment. The worst offenders may be past due on payments to a dozen vendors or even more, and most will have a documented history of paying late.
Particularly for large B2B contracts, it's worth the investment to know whether you'll be paid on time before you start putting in the work. Business credit agencies like Dun & Bradstreet charge between $90 and $120 to check a company's business credit history at varying levels of detail. Even if that upfront cost is 5-10% of your monthly contract, it may be better to lose that money up front than do thousands of dollars worth of work for free.
A credit check will show your prospective customer's business credit rating and payment history. If you see long outstanding payments or a history of late payments, you might reconsider whether that contract is worth taking on.
3. Make the Switch to Digital Receivables
Are you still printing and sending invoices to customers by snail mail? It's no wonder you're experiencing payment delays! Hi there. It's 2015. Everywhere you go, the world is operating online. If you want to get paid in the digital age, you need to keep up.
Accounting services like Freshbooks and Quickbooks Online offer user-friendly digital invoicing options for less than a year's worth of postage stamps. And just think! If you upgrade to accepting online payments, you could send your next invoice and receive payment before the mail man even arrives for the day!
4. Itemize Your Invoices
The more ambiguous your invoices are, the more opportunities you give your customer to question how much they owe. Each one of those questions takes time--a phone call, an email exchange--all of which build further delays in the time it takes your customer to pay their bill.
Avoid these delays by making invoices as explicit and detailed as possible, clearly explaining the origin of each cost. Describe how billable hours were spent. List unit costs for products. Essentially, imagine every possible question your customer could ask about their invoice, and then aim to answer each of those questions within the original invoice itself.
5. Send Invoices in Smaller Increments
Everyone knows that sinking feeling of opening up a giant bill. It hurts the pit of your stomach. It's overwhelming, to say the least, and most of us want to bury it at the bottom of a pile and never look at it again. By contrast, a few invoices at smaller amounts can feel more manageable. Even if the sum of the parts are the same, customers feel more confident in paying each individual invoice.
Instead of sending one large monthly or bi-monthly invoice, consider sending invoices to regular clients every week or two. Customers will feel more comfortable making payments as smaller amounts--and even if one invoice does go unpaid for awhile, the total will have less impact on your bottom line.
6. Set Clear Penalties for Overdue Invoices
No matter what helpful tools you put in place, the reality is you will eventually face one or several late payers. That's why you need a clear and direct payment policy that includes penalties for past due payments. After all, you need some compensation for the impact of late payments on your bottom line. And occasionally, it can create a sense of urgency.
Both in every client's contract and within the invoice itself, clearly state in writing your expectation for on-time payments, and provide written guidelines for what penalties will be incurred if clients fail to pay on time. Whether it's a 2% penalty for every five days overdue or a flat-rate dollar amount, clarifying the rules in writing gives you a clear policy to invoke when you do encounter a late paying customer.
7. Incentivize Early Payments
Positive encouragement trumps consequences every single time. So in addition to penalties for late payments, consider offering incentives or rewards for customers who pay early or on time.
Catch customer attention with a small discount for paying early, or even consider creative non-monetary rewards. That feeling of getting a gold star might make the difference in moving your invoice from the bottom to the top of the payment pile.
8. Know When to Cut the Cord
At a certain point, whether you're dealing with a disorganized consumer or a small business under financial duress, there is no quick tip or magic trick perfect enough to get you paid on time. So when your other options have failed, you have to know when to cut the cord with a chronically late paying client.
Don't continue doing work for a client that isn't paying up. Instead, provide two week's notice before pausing services, then if you don't receive payment within another two weeks, it's likely time to let that client go.
Payers have a variety of reasons for not making payments on time. Whether because of financial issues, priority level, or plain disorganization, the steps you take to make paying invoices easier on your clients can truly make the difference in preserving your own business's bottom line.