Top 7 Tips on Getting Paid Sooner
By Mike Van Horn
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How can you avoid being the involuntary banker for slow-paying customers? This is a frequent issue in our Business Group meetings. Here are ideas from the last such discussion:
- Get a merchant account. Have people pay you by credit card as soon as work is done. If people pay you monthly, enter their card number into your system, so you’ll bill them automatically. This costs you a couple of percentage points, but you get your money right now. It’s amazing the large amounts that businesspeople put on their cards! They want to build up their miles. We recently put a “shopping cart” on our website so that customers can enter their credit card data by themselves. They may end up buying more from you this way, since they now owe the credit card company, not you.
- Spell out your billing policy in your Terms and Conditions. Too many small businesses are fuzzy on this, and customers take advantage. If you don’t sound like getting paid on time is important to you, you won’t be. For example, some companies say “2% 10, net 30,” i.e., “You must pay within 30 days, and if you pay within 10 days, deduct 2% from the balance.”
- Bill on time, and bill for all the work you do. This sounds obvious, but many business owners are notoriously lax at this. Instead of invoicing monthly, consider billing twice a month. Send bills out as soon as work is done; don’t wait till the end of the month.
- Ask clients about their bill-paying cycle. You may discover, for example, that a client pays bills on invoices received by the 25th. If your invoice reaches them on the 26th, it sits in an inbox for a month. Ask a new customer what you need to do in order to get paid. With a larger company, you may have to fill out a “Vendor Payment Package” before they pay you. If you don’t fill these forms out initially, they’ll send them to you when you submit your first invoice, thus slowing payment.
- Make collection calls, or have someone else do this for you. Don’t delay. If payment is due on Day 30, call on Day 31 if you haven’t received it. People often pay those who ask for payment, and let others slide. When you call, don’t be aggressive or snippy — or apologetic. Never plead with them to pay because you need the money; request their payment because it’s due. Your tone should be firm, not nasty; stay focused. Be sympathetic, but do not get sidetracked by excuses. Get a commitment on payment – when and how much. Take the lead in getting terms set.
- Some will pay slow. If you have government or big corporate customers, it is a fact of life that they often pay very slowly—60 to 120 days—and there’s nothing you can do about it, except get enough fast-paying customers to offset them. Or stop doing business with them.
- Finance your accounts receivable. Get a revolving line of credit to cover your receivables gap. If you have to pay wages and other costs of $10,000 a month on a job, and you bill every 30 days, then they pay you in 60 days, you need at least $30,000 to finance that job’s receivable. Make sure you pay the account down whenever you receive these slow payments. Build the cost of your borrowing into the price you charge them—not “late fees” or “interest” but “admin cost” calculated upfront before you get the job.
Mike Van Horn
The Business Group
Mike Van Horns company, The Business Group, leads ongoing problem-solving groups for business owners. He is author of How to Grow Your Business without Driving Yourself Crazy.
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Article Submitted On: September 28, 2006