Having trouble getting your clients to pay on time? You’re not alone. There’s a disturbing trend in corporate America. Many large companies hoard cash and hold off on paying their bills so that they can increase their working capital. Sometimes, these late pays go on for 90 days or more. Here’s how to incentivize your clients to pay on time or early.
Offer Incentives For Paying On Time Or Early
Most business just expect to be paid on time. And, while this is a reasonable assumption, it’s not a very marketable one. By offering incentives for paying on time, or early, you reduce the risk of you having to accept late payments from all but the largest corporations you do business with.
Even then, some incentives are enticing enough to get the “big boys” to pony up the dough early. Cash incentives tend to work nicely, say a 10 or 20 percent discount on the invoice pricing. If you can’t work that into your margins, you’re not charging enough. Should you assume that every business is a late payer to justify inflating your prices? No, but think about this for a moment: late payments affect your own bottom line. They increase the cost of doing business for you as well as the risk. By raising prices, and then discounting them for good payment history, you’re building in an “insurance policy,” rewarding good risks and punishing adverse risk companies (companies that pay late).
Use Invoice Templates For Uniform Payment Options
Whenever possible, use these template samples for invoices. It’s easier than designing an invoice from scratch every single time, and it saves you time, and money. It also makes all of your invoices uniform. This, in turn, makes it easier for your accounts receivable staff to field questions on invoices and find errors before they go out to clients.
Templated invoices also make it unequivocal what your payment options are. If you customize a good template, it will be easy for clients to read and act on. There should be no mystery about the bill.
Customize The Details Of Your Invoice
A simple way to increase payment compliance is to customize or personalize your invoices. Start with your template. Now, customize the invoice using simple mail-merge functions in you word document processor, and you’ll turn the invoice into a personal bill instead of an impersonal demand for money.
It might seem strange, but many people, businesspeople included, respond more favorably to a bill when it appears to be more personalized. When it looks “rubber-stamped,” it doesn’t feel like there’s a real person asking for money, so it gets pushed down on the list of priorities.
Say “Thank You”
Following up every invoice with a “thank you” note is one of those things you learn in marketing, but not business school. Sending a thank you note tells the client that you personally saw the bill, acknowledged payment, and are appreciative of their business. More importantly, it says that you care about them not just as clients, but as people. Want proof that this works? Look to FreshBooks. It reports a 5 percent faster payment turnaround for businesses that do this one simple thing.
Charge Interest On Late Payments
If you’re not charging interest on late payments, you should. Businesses that pay late need to know that there are consequences for doing so. Merely sending them another invoice and asking for payment doesn’t say much except that you’re willing to accept tardiness.
Have a zero-tolerance policy. This also allows you to advertise “interest-free payments” on all invoices that are current.
Include Paperless Billing As An Option
If you have a cloud-based POS system (and you should), one option is to move to paperless billing. Keeping clients on an automatic payment “tab” reduces paperwork on both ends and ensures that payments are always received in a timely manner. Some business don’t like doing this, mostly those that cannot pay their bills on time or have chronic cash flow problems that prevent them from making payroll or bill payments every months.
These businesses suffer from a gap in their accounts receivable and accounts payable. They may need help, but it’s usually not something you can do anything about. And, while it might make logical sense to offer them paperless billing, you may well have to move on to factoring for these folks.
Get a Good Factor
No, not a benefactor, a factoring company. Factoring companies buy your outstanding accounts receivables and attempt to collect on the debt for you. You get paid upfront, but you only get a fraction of the full invoice price. If you’re selling all of your “late pays,” it usually doesn’t matter anyway, since your other option leaves your bank account empty. Passing on chronic late payers is also a sign that you need to cut the cord on these clients and vendors and move on to more financially responsible businesses.
Marguerite Lee is a retired secretary who likes to keep one eye on the business world. When she’s not busy with her eight grandkids, she’s researching and writing about business marketing and finance. Her articles appear on a variety of websites and blogs today.