We recently reported how businesses nowadays have to wait up to eight weeks to be paid. So with the understanding of how essential a healthy cashflow is to the survival and success of any business, here are a few tricks all you business owners can keep up your sleeves, to make your customers pay up quicker… without having to borrow a leaf from The Sopranos.
1. Get on the phone!
Once it clocks 14 days after delivering your invoice, go back to basics and make that call. It will be a difficult conversation but hey, someone has to do the dishes, right?
Take note that you should not ask when they will pay but rather why the bill has not been cleared. If there really is a genuine dispute with the bill, then you can handle it in time.
If you the owner feel you do not have the stomach for it, then get someone on your team who is cut out for this. Believe you me; there are people who enjoy asking for their money!
2. Make an effort to know your clients better
No, you do not have to ask them out on a date; make them fill out forms instead. The more information you have on your customers, the easier it is to pursue them for your money.
Get your first-time credit customers to fill out a detailed application form, with essential information about the owners of the business and how long they have been operating.
Make it a point to do credit checks on your large-order customers before you jump at the opportunity. If you have any doubts, then do not take their business, simple.
3. Diversify your customer base
The idea of reeling in a large customer, say a government organisation or large company, is more than enticing to any small entrepreneur. However, when they default, you are left hanging because all your efforts and resources were invested in this one customer.
Diversify your customer base with at least three other customers besides your big fish. Even if your large customer defaults, you can keep the business going with revenue from the smaller ones.
4. Get strong terms of trading in place
The lack of debt-recover-friendly terms of trading is yet another reason business take long to get paid, so it is high time you clearly spelled out the terms of business.
A particularly important clause to have in there is that in the event of a default, if the account is outsourced to a collection agency or law firm, all collection costs get added to the debt. This will surely snap any customer intent on dragging their feet back to reality.
A penalty for late payment could also come in handy. After all, don’t we all prioritise our payments? A late-payment penalty will give your customers more reason to push your bill up the list.
5. Reward when they pay on time
The previous point dealt was the stick. But what’s the stick without the carrot? So if you can find some space in your pricing structure, putting in place discounts for early payments, say 10 percent off on their next purchase can prove quite rewarding.
Also if you employ salespeople, only reward those that actually bring in cash lest they end up encouraging your customers to take their time. When they know that their commission depends on the client actually clearing their bill, then they will bring you less troublesome customers.