In businesses of any size, but especially in small businesses, cash flow is king. You need to have funds on hand to pay suppliers, purchase inventory and pay employees. Receiving late payments can severely cut into your cash flow and significantly damage your operation. Keep the money coming in by encouraging quick payment from customers who purchase your goods or services. Here's how to get started:
- Consider different solutions for different customers; offer bigger incentives to your best customers.
- Negotiate a quick payment incentive upfront, before the sale, on large-ticket items or transactions.
Offer discountsMany customers who pay within 30 days will gladly pay earlier if offered a discount. As a rule of thumb, offer a discount of 1 to 2 percent for paying quickly, such as 10 days of billing.
Offer gift certificatesThe lure of a gift certificate for products or services that appeal to your customers can be a mighty incentive to send in payments promptly. A simple lunch for two at a nearby café or a 15-minute massage at a spa could do the trick.
Offer store creditReward customers for making early payments with store credit. Send customers a loyalty card that's redeemable on their next visit.
Offer free merchandiseConsider stocking promotional merchandise, such as caps and T-shirts that you can offer to customers who make quick payments. Keep in mind that the promotional item has to be desirable enough to make a customer take action.
Offer a percentage off on future shoppingEntice customers to pay up fast with the promise of a discount on their next purchase. Not only does this prompt fast payment, but it also compels customers to shop with you again. Send customers a postcard with a percentage off offer they can use the next time they buy your products or services.
- Calculate how much you're able to cut into your profit margin before determining whether to give a discount for quick payment and, if you are, what size discount to offer.
- Assessing a penalty for late payments will prompt most customers to pay you on time or early.
- Do advanced scouting of your biggest new customers via a credit check and quickly weed out those who have a history of paying late.
- Mailing the invoice within a day of making the sale or delivering the product, instead of waiting the usual 30 days, is likely to result in quicker payment.