There’s nothing more frightening for a small business owner than having a near-empty bank account. But what can you do when clients pay late? That jeopardizes your own ability to pay your vendors, and can send you into a financial tailspin.
Fortunately, there are strategies for getting paid faster.
1. Diversify Your Methods of Payment
If you only accept cash or check, you make it harder for customers to pay you, especially if that’s not their preferred method of payment. If cash flow is an issue for your client, paying by credit card might be more convenient, and you will get paid faster. In addition, if you sell on the go, consider throwing mobile payments into the mix.
2. Give Payment Terms on Each Invoice
Don’t blame your customers for paying late; it might not be clear when the payment is due. Make sure each invoice has the due date clearly noted. Typically businesses give anywhere from 15 up to 60 business days to pay.
3. Send Digital Invoices
Unless you’re conducting in-person transactions, online invoicing makes things much easier. With online invoicing, there’s no risk of paper invoices getting lost in the mail, and customers can pay directly from that invoice if you have an online payment processing service.
4. Offer a Discount for Early Payments
One way to incentivize late payers is to offer a discount if they pay early. You don’t have to offer much in the way of savings: even 2% might be enough to get them started.
5. Charge a Fee for Late Payments
Another strategy is to penalize late payments with a fee. Again, it doesn’t take much; people don’t like paying more than they have to, so they’ll be spurred into action to pay on time with even a small fee.
6. Talk to Your Clients
There may be a reason your client is late in paying. Perhaps he’s having his own financial issues, or is traveling or ill. Take these situations on a case-by-case basis, and when you can, make payment arrangements that work for both of you. This also strengthens your relationship with your customers.
7. Set up a Subscription Service
If your clients use your service at the same rate each month, consider using subscription or automated payments tools (Paypal has a great one) so you don’t have to manually send an invoice each month and then wait for payment. The client’s card is automatically billed monthly, and you get paid faster.
8. Go See Your Client
A personal visit by someone waiting for a payment will do wonders! Or if you don’t have the time, pick up the phone and give your late-paying clients a courtesy call to “check in,” and casually mention that payment that’s behind.
9. Get the Best Contact
Find out upfront who the best contact is to send your invoice, and it’ll get processed faster. If you’re sending invoices to the marketing manager but they need to go to the accountant, that’s an extra layer wasted time keeping you from getting your money.
10. Be Diligent
It’s all too easy to overlook a late payment if you have a large customer base. See if your accounting system can be set up to send you alerts when a payment is late so you can stay on top of it.
Jaimie Yun has more than 15 years experience across financial sectors of public accounting, corporate finance and more. She is on the advisory board of PayDemand.com, a credit card processing marketplace that allows businesses to compare multiple credit card processing rates and get the best offer while remaining anonymous to processors. Connect with Jaimie on Google+ and follow PayDemand on Twitter.