charge before
HOW CAN YOU PAY BEFORE?
How can you avoid being the unwitting banker for delinquent customers? This is a frequent topic in the meetings of our Business Group. Here are insights from the latest such discussion:
1. Get a merchant account. Have people pay you by credit card as soon as the job is done. If people pay you monthly, enter their card number into your system, so it will automatically bill them. This costs you a couple of percentage points, but you get your money right now. It’s amazing the large amounts that entrepreneurs deposit on their cards! They want to accumulate their miles. We recently put a “shopping cart” on our website so customers can enter their credit card details themselves. They may end up buying more from you this way, since they now owe the credit card company, not you.
2. Explain your billing policy in your Terms and Conditions. Too many small businesses are not clear on this and customers take advantage. If it doesn’t seem like getting paid on time is important to you, it won’t be. For example, some companies say “2% 10, net 30”, that is, “You must pay within 30 days, and if you pay within 10 days, deduct 2% from the balance.”
3. Bill on time and bill for all the work you do. This sounds obvious, but many business owners are notoriously lax on this. Instead of billing monthly, consider billing twice a month. Send invoices as soon as the job is done; don’t wait until the end of the month.
4. Ask customers about their bill payment cycle. You might discover, for example, that a customer pays invoices received before the 25th. If their invoice reaches them on the 26th, it stays in an inbox for a month. Ask a new customer what they need to do to get paid. With a larger company, you may need to complete a “Vendor Payment Package” before you get paid. If you don’t complete these forms initially, they will be sent to you when you submit your first bill, delaying payment.
5. Make collection calls or have someone else do it for you. Don’t delay. If payment is due on the 30th, please call on the 31st if you haven’t received it. People often pay those who ask for payment and let the others slide. When you call, don’t be pushy, pushy, or apologetic. Never beg them to pay because you need the money; request your payment because it is due. Your tone should be firm, not unpleasant; Stay focused. Be understanding, but don’t be distracted by excuses. Get a commitment to pay: when and how much. Take the initiative to set the terms.
Is there a problem? figure it out Talk to your customer; ask if there are any issues that are causing you to be paid slowly. If they question the amount of your bill, explain it with facts, offer no apologies, and do not offer write-offs. Remind them of value: why you are worth the price.
If you change the scope of work on a project, tell the client up front how this will affect what you’re billed to avoid unpleasant surprises. One of the main reasons for late payment is that customers do not understand the invoice or believe that they are being billed incorrectly.
The person you work with may not even know that they are being paid late. Many companies have an unspoken policy of paying bills as slowly as possible. But by talking to the person you work with, you can override that policy for you.
Stay on top of how much you are owed. Maintain an aging schedule for accounts receivable. Use your accounting program or a spreadsheet to list all outstanding bills that are past due. It will have columns showing the accounts by age: 30 – 60 days, 60 – 90 days, more than 90 days.
6. Some will pay slowly. If you have government or large corporate clients, it’s a given that they often pay very slowly, 60-120 days, and there’s nothing you can do about it except get enough fast-paying clients to make it up to them. Or stop doing business with them.
7. Finance your accounts receivable. Get a revolving line of credit to cover your accounts receivable gap. If you have $10,000 a month wages and other costs to pay at a job, and you bill every 30 days, then get paid in 60 days, you need at least $30,000 to fund accounts receivable from that job. Be sure to pay the bill each time you receive these slow payments. Build the cost of your loan into the price you charge them, not “late charges” or “interest”, but “administrative cost” calculated up front before you get the job.
8. Fire Slow Paying Regulars! Life is too short to put up with these people. Focus on your customers who are happy with your work and your price, who pay on time and say “thank you!” With the others, decide that you will no longer go after their business.
Should you take legal action against a late payment? Probably; however, weigh the costs and benefits. How much will it cost you in money and time to collect a past due amount through Small Claims Court or other means? You don’t want to spend $10,000 to collect $5,000, even if it’s a matter of principle.
IN SUMMARY: The key to collecting money from your customers is telling people what your terms are before you start doing business with them, billing on time, and making collection calls as soon as no money is due.
mike vanhorn
The Business Group