In business, it goes without saying: getting paid is essential. However, business owners struggle with cash flow issues due to lag times between invoicing and settlement. Here are a few of our top tips to help you get paid faster:
- Get paid faster by accepting credit cards
Although processing costs for credit cards hovers around 2.9% of your total charge, it is still the fastest way to get paid.
The best practice is to charge the customer in full for 100 percent of the service up-front, but not everybody is willing to pay in full before receiving the service. In this case, you might consider setting up a process payment:
If the job is large and there is little chance of getting the entire amount paid up-front, you could charge the customer based on measurable goals. This should satisfy both your cash flow issues and the customer’s ongoing satisfaction with the work being done.
Note: If you are a contractor, collecting money after the job is complete is sometimes difficult. If you obtain a performance bond, you can collect all charges before you even begin the job; otherwise, based on the laws in most states, you can only collect 10 percent of the total. Let’s say the whole construction is $20,000. With only $2,000 up front, you can’t even cover the materials you need for the project. If your customer then tries to avoid paying, it will be hard to collect.
- Automatically charge the customer credit card or use an ACH
Outline terms and obtain a customer signature to authorize payment so that when the service is completed, they will be charged. This way, you won’t have to chase them down to get paid.
Automatic Monthly Payment (recurring charges)If you are providing any kind of service, you can create a monthly package and charge them automatically based on your package rates or individual services that you provide. This way, you always know that you will be paid on time.
- Offer a payment term discount
Depending on how big of a company you are dealing with, you can create a discounted rate or attractive terms to create value. For example, if you are selling products to Home Depot, you know the fastest they can pay is 15 days. So, you offer them a 5 percent discount if they pay in 15 days. Or, you could negotiate a discount that incentivizes payment for an extended period, say 10 percent for paying a year in advance.
- Levy finance charges for late pays
This might be the least effective way of getting paid faster because some customers may try to argue that they sent the payment on time. You may wind up collecting faster, but in some cases you may end up spending too much time chasing that disputed amount.
- Send biweekly statements as reminders
Send biweekly statements to customers that have a balance to eliminate the “we didn’t know” conversation. Email or fax your statements directly to their accounting department to ensure they receive it on time.
- Put your customers’ overdue accounts on hold
If your customers have invoices outstanding for more than 10 days, place their accounts on hold or on “COD” terms until they get current.
- Get on the phone
If you have invoices that are more than 19 days’ past due, assign someone to call them to find out if there is an issue. Often, the problem can be resolved with a simple conversation.
- Send a “past due” email
When a customer is two days past due, email them the outstanding invoice with a ugly red stamp that says PAST DUE on it. That often does the trick.
- Cut off their line of credit
If a customer is frequently past due, do not issue them any further credit. Usually, once they have been cut off, they will never be late again.
Do you have any sure-fire tips for getting paid faster? We’d love to hear about them! Above all, always have the proper protections in place to ensure your business interests are protected.