Home ANZ CASHFLOW SERIES Cashflow challenges continued… How to get paid on time.

Cashflow challenges continued… How to get paid on time.


One of the most difficult and often emotionally charged aspects of running a business is collecting accounts receivable. Yup. This instalment in our seven part series is all about getting paid!

Imagine this. You and your team have worked hard to secure your clients. There have been highs, lows and even high fives. Winning business is an exhilarating process.

You work even harder. Provide an excellent service or deliver an outstanding product. You are doing well. Progress feels good and it feels great to be adding value.

Then, your much-loved client or customer fails to pay you on time.

You fear that maybe there was something you missed. Could it be your fault? Or maybe your client or customer has hit hard times? Is there a risk that you will be left short?

When you’re a business owner, it can sometimes be hard to view a situation without the baggage of vested interest. Furthermore, after building a relationship, it feels just plain rotten to hound a customer or client for payment.

This is where it’s essential to have a collections strategy in place.

By creating a set of ‘policies’, coupled by a sequence of consistent steps, you can remove the emotional distractions too often associated with accounts receivable.

1.      Make sure that you have clear payment terms (and discuss them)

It seems so simple but many organisations fail to clearly articulate their payment terms. Or, when they do, it’s a three word explanation on the invoice (‘14 day terms’).

However, smart organisations understand that the human mind needs at least several prompts to acknowledge and store information that’s not perceived as immediately important.

So, what sort of things are immediately important to an individual? Of course, interests will vary. But fear and greed are both consistently effective at grabbing attention.

To harness these two attention grabbers, perhaps beef up your terms. Make it clear that late payment will incur fees and interest, while early payment will be rewarded with a discount. And articulate the terms at multiple points during the customer or client acquisition process.

Importantly, you don’t need to employ frightening or legalistic jargon. You can make it fun. “We like to reward the proactive! That’s why we offer early payment discounts. But, be warned. Late payment incurs fees (and we’ll hunt you down like a Tiger). So, if you require more flexible payment terms, please discuss these upfront your favourite company contact.”

2.      Prepare a schedule of letters in advance

Before you commit to the delivery of any product or service, it pays to have pre-prepared a schedule of reminders letters. Once again, these needn’t be heavy handed but they need to be consistent, and clearly articulate your position and expectations.

By having a structured sequence of letters (that’s your ‘policy’ to send), you immediately remove any self-doubt about whether your next step might seem heavy handed. Collection then simply becomes part of your business (as it should be). And your clients will respect you for it.

To kick things off, a common strategy is to send your invoice, then a reminder that payment will soon be due, usually seven days in advance. For example, if you have 14 day payment terms, send the first letter seven days after the invoice (that’s seven days before due date). Surprisingly, many organisations will see the letter, assume the invoice is due and actually pay you early.

3.      Create friendly reminder letters

What happens next? In Australia, it takes an average of 52 days for an invoice to be paid after the due date, according to Dunn & Bradstreet. Therefore, it’s safe to assume that, by and large, most your customers will not meet the payment date in your terms.

This is where reminder letters become essential. Because late payment is likely, it’s important that you be consistent with all your customers. Once again, having a consistent schedule will make collections easier to manage and remove any second guessing.

Provide your customers with a grace period of six or seven days, then send the first reminder. Do not simply send a statement of accounts. Include a cover letter and, once again, clearly articulate the situation and expectations. You can make this formal or fun.

Ensure that the postage of your reminders runs like clockwork. Be efficient and professional, but also non-threatening (until it’s time to introduce a legal collections agency).


Step One: Start lighthearted

Here’s one non-scary way to structure your first letter. Keep it conversational.

“Oops. Looks like you might have forgotten to pay your invoice. Don’t sweat it. It happens to the best of us. Click here to get it sorted!”

Keep it simple, and most of the time, you’ll get paid straight away. People don’t like to upset the ‘humans’ they like doing business with. This tone humanises the request.

Step Two: Get formal

If the payment is a couple of weeks late, you might want to try something a bit more demanding, without losing the ‘human’ tone establish in your first reminder:

“According to our records, your most recent invoice is two weeks past due. Please click here to fix it up right now. If you’re having trouble meeting this payment, please contact our offices as soon as you can, before our late payment fees kick in. Help us help you!”

You’ll notice that this sample features multiple uses of the word ‘you’ in a non-threatening way. This creates a sense of personal responsibility. By making the recipient feel personally responsible for payment, the recipient is more likely to give your invoice priority.

Step Three: Get Serious

The number of reminder letters you choose to include in your schedule is up to you. But, when it’s time to get medieval on their arrears, use more formal wording, reflecting the fact that you take the withheld income relating to the invoice in question quite seriously:

“Dear customer, please reference (account number), (invoice number), (date of original billing). This is our third attempt to contact you in reference to the balance due. Your account is now seriously past due. It’s important that we speak with you right away. Please contact us to discuss your payment options.”

Beyond the third notification, don’t be afraid to engage a collections agency. They too will issue a sequence of letters, progressively scary in tone. (It’s their specialty.)

4.      A note on flexible repayment options

The process of setting a reminder letter schedule will also provide you with more clarity about when and how your customers and clients are likely to pay you. With this knowledge, you may want to revisit any loans, overdrafts or credit facilities operating within your business.

You might already be operating on loaned funds and you will now have a stronger appreciation and understanding of how your customers and clients behave. With that in mind, you may wish to seek out lenders offering flexible repayment options that can be structured to fit your accounting cycle, as well as allow you some flexibility when things go awry.

Banks understand this and have established flexible repayment options to offer loan customers manageable repayment terms. Choosing a lender that offers flexible repayment options will help you avoid becoming the recipient of reminder letters yourself.

See how it all comes full circle?

What next… Get the full series.

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