The success of your business relies on you getting paid on time.
Chasing late payments can be one of the most frustrating parts of any business, especially if it happens on a recurring basis.
That’s why it’s so important to have a plan in place for handling invoices before a payment ever becomes delinquent, as well as a plan for customers that seem to fall behind.
Here are a dozen or so strategies you can use to make sure that you’re getting paid when (and how) you want.
1. Send Electronic Invoices
Dealing with invoices can be a major hassle as it is without having to worry about paper invoices getting lost in the mail or damaged before they’re paid. With electronic invoices that worry disappears. If you give customers the opportunity of paying electronically, you will see a much quicker response in payment times.
2. Invoice Your Client ASAP
You should send the invoice as soon as service is rendered. This helps customers link the completed work and payment as a single, final step, which can provide a psychological incentive to pay on time.
If your business runs off subscriptions or recurring billing, you can also automate invoices to be sent as soon as the service is renewed every month (or annually depending on your terms).
Piecing together the data you need to file taxes? Imagine all your revenue streams in one place, with complete tax reports at the click of a button.
3. Choose “Day” Instead of “Net” Terminology On Your Invoices
Many invoices include “net” terms – like net 30, net 60, etc. – that let the customer know that they need to pay within a certain number of days (30 days, 60 days, etc.). The trouble with this is that customers don’t always know what “net 30” means.
Instead, use phrases like “Payment due within 30 days” so the customer can identify exactly how long they have to make a payment. If you need something sooner than that, make sure to include a statement that says “due upon receipt” and be sure to include the current date before you send it.
Be sure you also have a written agreement that outlines terms, deadlines, fees and other essentials before you start working with them.
4. Set Up Early Payment Incentives
Incentives are a great way to get paid faster, especially if you use net 30 terms. You can easily offer a 5% discount (or any percentage) on the invoice if they pay within 15 days, for example. This may not be the best route if you’re seeking a payment for a large sum of money, however, but there’s another way you can make incentives work in your favor…
5. Send Multiple Small Invoices
Many customers prefer a single, large itemized invoice, but if you still wanted a way to include an early payment incentive without losing too much money, you can send smaller invoices with optional discounts. This could also be an option only for those customers with a track record of not paying on time. Multiple invoices creates multiple reminders for them to pay, too. Or you could just…
6. Request Payment Before Services Rendered
If your customers have a habit of delaying payments and you’re spending too much of your time chasing down invoices, consider getting paid before you do any work for them. This could be a small amount or fraction of the total sum, or it could be for the whole payment (with additional services tallied at the end of the month and rebilled, or added to the next months bill, for example). This will not only improve your cash flow, but customers will be “trained” to pay you without even thinking about it.
7. Penalize Late Payments (If Necessary)
There is some debate about whether or not you should include a late payment penalty for your invoices, with some arguing that late fees can drive away business or damage long-term customer relationships.
The case can probably be made to include a penalty for payments that are abnormally late (over 90 days, for example), with no penalty for late payments made before that time (like a grace period). That way, customers have some leeway if they simply forget, your relationship won’t be ruined, and you can still make money if you’re consistently receiving late payment from them.
8. Send Your Invoices On Time
This is possibly a no-brainer, but if you expect to get paid on the last day of the month but you don’t send the invoice until the 10th (with a net 30 term), don’t expect your payment to come on the day you want. If you want to get paid faster, create a regular billing schedule and stick with it so that customers know what to expect and when to expect it over time.
9. Send a Pre-Invoice Reminder
It can also help to send a friendly reminder email to customers a few days before you send the actual invoice, giving them time to prepare their payments if they’re prone to forgetfulness.
10. Explain Every Charge
Don’t send your customer an invoice with only a dollar amount on it. Itemize everything and include descriptions so that customers know exactly what they’re being charged for and why. For example, if you charge certain customers more or less than others for any reason, indicate why on the invoice itself. It will be less likely a customer will waste time contesting an invoice if everything is laid out in black and white.
11. Halt Work Until You Receive Payment
Similar to a penalty, if you have chronically late payers, consider a dose of negative reinforcement if necessary. The goal isn’t necessarily to punish the customer, but rather to help them see that they are paying for valuable services, and if they don’t pay, those services won’t be rendered (meaning you’re both out of luck).
12. Review Your Invoice System Often
Part of your responsibility as a business owner is to make sure that your payment system is actually working. It’s normal to have a few customers that don’t pay on time here and there, but if the majority of your customers are skipping payments or paying late, then the problem is with your system. Keep track of your invoices closely and monitor any late-payment behavior so you can catch any flaws sooner.
13. Re-evaluate Your Relationship With Chronic Late Payers
Finally, if you have a certain customer or customers that simply can’t be bothered to pay you on time, and you’ve already bent over backwards trying to make things work, consider having a serious conversation with them about whether or not to renew their service. After all, it’s your company, and you’re in it to make a profit. If they can’t understand that, they don’t deserve you.
Invoicing and tracking down late payments is never fun, but it’s a necessary part of the job. You can make it go smoother for you by taking some time to make sure your invoicing system is up to par.
Send reminders to customers more often than you think is necessary (don’t be afraid to “bug” them about it), make sure to communicate clearly both in your invoices and in your emails or reminders, and don’t be afraid to stop working or to halt progress until you’ve been paid.
Make it clear that you value the customer and you want to continue working with them, but that you are, in fact, a business and you don’t run on good will. Hopefully your customers will see the error of their ways and pay you in a more timely fashion.