In business, getting paid is essential. Without getting paid you won't get far. Everyone and everything costs resources doesn't matter if you are a local business, a church of NGO. Sometimes it happens that business owners struggle with cash flow issues due to lag times between invoicing and settlement. You might say Yes, that is normal, there is nothing to be done about it. But is it really true? Isn't there a way to get your money quickly and safely?
Luckily for you, there are several ways to help your customer pay to you. Some are practical, like sending him payment link, some are explicit like providing him with a loan, and some are implicit like giving him good advice on the management of his finances. From the long list of actions your customer can take, 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 hover 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 per cent 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 processed payment:
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, sometimes called milestones. 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 of US states, you can only collect 10 per cent of the total. Let’s say the whole construction is $20,000. With only $2,000 upfront, 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 per cent discount if they pay in 15 days. Or, you could negotiate a discount that incentivizes payment for an extended period, say 10 per cent for paying a year in advance.
One of the payment term discounts is the so-called Early Payment Discount. It can also be called a Prompt Payment Discount or simply Cash Discount. This discount helps you cover uncertain periods, or at least, shorten them.
This incentive has its pros and cons. Among its pros we can find:
- Getting paid faster, accelerating cash flow
- Reducing risks of non-payment or late payment
- An attractive alternative to cheap financing methods
It has cons as well:
- For important suppliers, this doesn't have to win/win. As essential suppliers are with you for a longer period it is expected that there will fewer payment issues. In such a case, this step created a 2% deduction from payment working effectively as an interest rate on these faster payments. And a 2% interest rate on 20 days, is in case of 10 Net 30 a staggering 36% annual interest rate, making it much more efficient to simply take a bank loan.
- Another issue with this is that it is voluntary, and the other side can simply choose not to follow it, making your cash flow even less predictable than before.
Learn more about discounts on early payment in this guide by BDC.com here.
Levy Finance Charges for Late Pays
To levy, something means to impose obligatory pay. For instance, the government has an obligatory pay - taxes. Therefore we can say Government levy income tax.
To levy charges for late pays then means to introduce to your payment terms late fees as a form of punishment. 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 the conversation. Email or fax your statements directly to their accounting department to ensure they receive it on time.
Before sending any reminders to make sure your customer knows he is going to receive them. You can inform them in advance and point out at your payment terms (where you definitely should have it), because a customer can get easily irritated thinking you don't trust his future payment, potentially undermining future cooperation.
Put Your Customers’ Overdue Accounts on Hold
If your customers have invoices outstanding for more than 10 days, place their accounts on hold or COD terms until they get current.
COD (Cash on Delivery) is a type of payment that happens the moment goods and/or services are provided.
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 an ugly red stamp that says PAST DUE on it. That often does the trick.
Cut Off Their Line of Credit
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.
Here is some great information if you are a freelancer
