Customers: As the owner of a business, you rely on them, appreciate them and are extremely grateful for their business. In some cases, though, your customers also can be a source of frustration, particularly when they are slow to pay you for your goods or services.
Slow-paying customers put a significant strain on any business. These are the people that can make you work weeks or months after you've delivered a job just to collect what is owed. These are the people who can impact your cash flow, make it impossible to budget effectively and cost you time and money.
But there are ways to constructively approach this challenge, which almost any business owner is bound to run into at some point. These simple ideas can help you encourage your customers to pay on time, so you can spend less time chasing—and more time earning.
1. Give customers a good reason to pay early.
It's hard to deny that we sometimes live in a "What's in it for me?" society. People can feel more motivated to do something when there is a worthwhile benefit for them. Take a look at your hourly rate—and the cost of the time and effort you put into following up with late payers. This will help you identify a discount you can offer to people who pay early. Maybe it will be 10 percent, maybe slightly more, but that little incentive may be enough to get people to prioritize your bill.
2. Give them a good reason not to pay late.
Don't be afraid to use late fees as an incentive to stop customers from paying late. Make sure it is clearly marked on your invoice, and mention it at some point in the contract cycle so you're sure they understand. And stick to it. If you have a late-payment fee in place, don't waive it for any reason—or you may find yourself with customers who are always forgetful, always dealing with one thing or another, because they know they'll find forgiveness on your end.
3. Shorten your payment terms.
Some customers are just wired to be late, not just when it comes to paying their bills, but with everything they do. Question your default payment terms and ask yourself if tighter turnaround times would make a significant difference to your customers. If not, consider adjusting your terms from the standard 30 days to 15. This can help increase the chances they'll pay when you want them to—maybe not at 15 days, but hopefully at the 30-day mark you had originally planned for.
4. Make it really simple to pay.
Eliminate any and all points of friction between your customers and payment. People today are accustomed to having a wide range of payment options, so be sure to offer the full range they expect to see. The easier you make it to actually complete the transaction, the faster you might get paid.
5. Track your deadlines.
Don't assume your customers are on top of their deadlines. Knowing when payment deadlines are approaching allows you to take action before there is an impact on your cash flow. Follow up a few days before a due date (or even the day of) with a friendly reminder; that may provide just the nudge they need to avoid the hassle of late payment.
6. Don't be the collector.
When you do run into the occasional customer that simply won't pay at all, it may be worth hiring someone to handle collections on your behalf. Besides the effort it requires from you, being the collector puts you in a different light with a customer. Even if the late payment means you would prefer not to deal with this customer again, you don't want them talking to people in a negative light about you personally. Let someone else be the "tough guy" so you can focus on attracting new clients and building your business.
Slow-paying customers are a challenge for almost every business owner out there at some point, but building in a process to deal with them head on can help you keep your cash flow in check and minimize the overall impact on your business.
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