Tips to Getting Paid Promptly
One of the worst issues some small business face, often in the early days when the business is just starting out revolves around cash flow. Even if projects can be found which are profitable, the expenditures occur prior to the customer paying resulting in negative cash flow most of the time, with large boosts of cash at the end of each milestone. Additionally, with some customers being slow to pay, the cash influx that would have assisted during the next project does not arrive, thereby exacerbating any existing cash flow issues.
There are, in fact, two issues here. The first is how to operate without cash, a function of being paid only after the work is complete. In a service-based business, this is often the nature of the work. While margins should be adjusted to allow for this, with the deposit and each installment covering the costs associated with the next stage of development, and the final payment being completely profit, this rarely happens in the real world. However, that is not the focus of this article.
Instead, I will focus on how to get your customers to pay you in a timely manner, something which I have been able to do with almost every one of my clients. While there have been exceptions, in most cases, my clients have paid me within 10 business days of receiving the invoice, and often at the same time as the invoice is sent over.
First, you need to ask your clients to pay promptly.
It amazes me that some business owners don’t realize this. If you don’t tell your clients when you would like to get paid, they will assume that they can wait until the very last day to pay the bill. Should you want the money earlier, then you need to ask your clients to pay the bill earlier if they are able.
However, this will only work if your clients themselves have the cash flow to be able to pay your invoice on demand. The larger the invoice, the less likely a mere request is to get them to cough up sooner rather than later.
Offer a benefit for prompt payments.
If the client is truly strapped for cash, then offering a small discount (one or two percent) on the amount of the invoice can encourage them to pay sooner. While the savings might not be large, if they are having a cash flow issue, then this can assist them in a small way. Since it’s a discount on the invoice, and not a penalty for late payment, you don’t have to deal with interest calculations and associated headaches.
Arrange payment plans.
Something I offer every client who asks is whether they would like to set up a payment plan. On my part, this involves minimal effort, since my accounting software can calculate for me the outstanding balance, as I apply each partial payment. It involves a little more work for the client, since they have to remember to pay me more often, but often making this offer will ensure that I’ll get the full amount in a predictable time frame.
A client who has a $10,000 bill might split it into 10 equal payments, one each month until it’s paid. I don’t get any extra money, but I also know each month that a $1,000 is going to arrive from that client, and I can plan around it.
Refusal to look at this option can often be the difference between getting paid a bill in its entirety and not getting paid at all. Without offering this, some clients may believe that they have to pay the entire bill at once, and will hold off on paying installments until they can pay the entire bill, which may never happen. By being able to pay an installment, it minimizes your exposure with each installment, and increases the likelihood that the installments will, in fact, arrive.
Stop providing service.
If a customer is continually late with payments, then inform them that they need to pay in advance to get further service. Stop allowing them to run a balance if they cause problems to your cash flow by not abiding by the terms of the agreement. Excuses from the client about why the money hasn’t arrived should be taken with a grain of salt – their problems are not your problems, a lesson I learned the hard way earlier this year.
At the end of the day, it comes down to asking to be paid when you need the money, and working with your customers to ensure that both your needs are being met. Yes, there are cases where this won’t get you any closer, but for the times that it gets you paid faster, isn’t it worth asking?