Want to Get Paid Faster? Speed up Customer Payments With These 5 TipsRachel Blakely-Gray
You want to run and grow your business. Unfortunately, you can’t do that if you don’t get paid. Although you’re sometimes at the mercy of your customers when it comes to cash flow, there are some actions you can take to speed up payments.
If you’re sick of waiting on late-paying customers, check out five tips to get paid faster.
5 Tips to speed up customer payments
You probably try to accommodate your customers, especially during emergencies, like a global pandemic or natural disaster. But, waiting on your accounts receivable could wind up sending you into negative cash flow territory.
So, do you extend credit to customers or invoice after providing a good or service? If you do (and have collections issues), take a look at these five ways to speed up payments.
1. Create a clear payment policy
For timely customer payments, you need to lay all your cards out on the table. Otherwise, customers won’t know the terms of their transactions.
Payment terms and conditions should be clear and easy to understand. Using confusing and complicated language will only lead to misunderstandings (and delayed payment).
So, what should your payment policy discuss? Include key information like acceptable payment methods, how many days the customer has to pay, where to send money, and what happens if they don’t pay. Be clear about when they can expect an invoice.
Here are four tips to ensure you and your customers are on the same page:
- Put payment terms in writing
- Discuss payment terms before you begin work or deliver products
- Require customer agreement (e.g., signature)
- Send customers a clear invoice outlining payment details
When you send an invoice, include key basic information, such as the invoice date, customer information, seller information, and product/service information. Also, reiterate the amount due, due date, and payment terms.
2. Offer an early payment discount
If you’re tired of customers waiting until the due date to make a payment, you might consider offering an early payment discount.
An early payment discount gives customers a price cut if they pay their bill before the due date. These types of discounts encourage customers to make payments early in exchange for a percentage or dollar amount off of their total bill.
If you decide to offer a discount to early-paying customers, let them know. Clearly outline the discount amount and deadline to take advantage of the discount.
Here’s an example of how to write an early payment discount in your payment terms:
- 2/10, Net 30 (i.e., 2% discount for payments made within 10 days; 30-day overall due date)
Need help coming up with a discount amount that will speed up payments without jeopardizing your profits? Calculate your profit margin after taking an early payment discount into account.
3. Tack on late fees
Don’t want customers paying after the due date? Discourage late payments by adding late fees or penalties. You can determine the terms of your late fees, but be sure to explain them to the customer. And, your late fee policy should be reasonable (i.e., don’t charge a late fee of $100 on a $10 bill).
Decide whether you want to extend a grace period after the due date or if you want to tack on late fees the day after the deadline. For example, you might charge customers an additional $25 fee if their payment is late.
4. Send payment reminders
One customer invoice may not do the trick. The customer might look at it and tuck it away in that catch-all kitchen drawer. Or, an e-invoice could get buried in their email. Whatever the case may be, send multiple payment reminders to ensure your invoice stays on your customers’ minds.
You can use an accounts aging report to track your accounts receivables so you know when to send reminders. And if you use accounting software, you may be able to set up automatic payment reminders for unpaid invoices.
In addition to nudging customers to pay before the due date, you may need to remind them after the deadline passes through a collection demand letter.
5. Work with customers
Throughout the collection process, maintain a level of professionalism and empathy. You may have some customers who want to pay but can’t because they are struggling financially. Or, you could have customers who recently went through a tragedy or major life event and forgot about the payment.
If the customer doesn’t have enough money to make the full payment, consider setting up a payment plan. This type of arrangement can help you receive the money you’re owed little by little and maintain customer loyalty.
Before setting up a special payment plan, put together a document outlining installment amounts and when each is due. Make sure to get the customer’s signature acknowledging the new arrangement.