Small businesses need to start treating their customers like toddlers and train them to pay on time. Carl Taylor looks at six ways to get your customers to pay up.
The other day I was out to dinner with a friend who is also in business, and a concerning topic came up — the one that all small business owners are aware of — getting clients to pay on time.
I was absolutely shocked to learn that my friend had a client who owed money on invoices dating back two years!
What was even more concerning was that they felt because they were a large client there was nothing they could do as they might upset them and it was just how small business is.
The conversation continued and I heard about things my friend and team do for their clients regularly that they don’t charge for… just because they don’t want to risk losing the client (yet the client doesn’t pay on time).
Now I understand this mentality, I even used to share these thought processes… but if there is one thing I have learnt through my previous businesses is that small business doesn’t have to be this way — it should be a give and take relationship!
You must learn to value yourself and what you bring to your clients and don’t get caught placing too much of your company’s future in one client.
Apart from looking at your customers and using Pareto’s 80/20 rule to determine where to best focus your efforts, you can also focus on training your customers on how your businesses billing process works.
Here are six tips you can use to train your customers to pay on time.
1. Early Payment Discounts
Some clients will delay payment up until the last moment, because like you they are trying to manage their cash flow. If you can offer a benefit for them to pay an invoice immediately, you will find a higher percentage of payments will come in quicker. You may have to raise your price slightly to comfortably cover this cost — but it’s worth it.
2. Late Payment Penalties
You need to judge your clients and your service suitability to this one. I much prefer the early payment reward rather than the late payment penalty however it is a viable method.
Some clients just won’t pay because they aren’t under enough urgency. Solve this by putting penalties on deadlines. Extra fees to cover the legitimate costs of having to resend invoices, chase up payments etc.
Sometimes, a project has ended and the client has just forgotten about you. Maybe it’s because you did such a great job that there haven’t been any issues that needed following up on. So keep communicating with the clients and their accounts personnel so you are top of mind. Maybe even ask if they have lost your invoice and if you should send another.
Try to keep it polite.
As much as you want to keep your communication polite. At the end of the day if you have done work and haven’t been paid for it – you should escalate.
Escalation really depends on the client but you may need to have a serious discussion with the key decision makers of your customer, you may need to hold off on doing any further work if accounts are not up to date, or you may need to escalate to a lawyer or professional debt collection agency.
5. Payment Plans
Businesses of all sizes and profitability can have tight finances, don’t think just because a company is big that it doesn’t sometimes suffer from cash flow issues. Sometimes the best thing you can do is offer a payment plan. This is where you may not get paid in full immediately, but they pay a certain amount upfront and pay the rest off in pre-agreed amounts and milestones.
6. Reward Good Payers
And to finish it off, my favourite. Reward your clients who pay on time with a gift. I know a company that sends a small chocolate with every receipt.
Think about it, if you were paying bills and you had a desk full that needed to be paid. You would prioritise them would you? Now are you more likely to pay one that then gives you, the bill payer, a present first or last?
If you do this one, you must be consistent. It has to become policy and the client must receive the gift every single time they pay within the terms provided.
What are the strategies you have used to train your customers to pay you on time?
Carl Taylor is an entrepreneur and the author of Red Means Go! Secrets to Achieving a Happy, Effective and Successful Life with You in the Driver’s Seat.