One of the worst things about running a business is getting delinquent customers to pay. For small business owners it’s made worse because unpaid bills can quickly spell a company’s demise.
“During the first five years of the life of any small business effective cash flow management is one of the biggest necessities and stressors of the business owner,” says Scott Rumley, owner of BookKeeping Express Franchise in Tulsa, Oklahoma. “For many organizations the possibility of having to close their doors is a reality they face if their customers are slow to pay their bills or if they chose not to pay at all.”
You may bristle at the thought of having to chase customers down to get paid, but it is a reality that happens all the time. The pain can be alleviated somewhat by laying out the payment policy upfront, billing quickly and often — and by offering incentives to pay early or even on time.
According to Marley Majcher, chief executive of The Party Goddess!, an event planning company, to figure out the appropriate incentive to offer customers first determine how much it costs you to chase down a late client. Take the average cost of the last three late clients and then decide what discount you are willing to offer to avoid the hassle in the future.
“Let’s say the average time it takes to collect on a late person is three hours and you don’t want to make less than $60 an hour, that’s $180. How much of that would you be willing to give away up front never to have to deal with it?” says Majcher. Incentives can be structured as a percentage off for early payment, or for pre paying for multiple months. You can also offer rewards for six straight months of paying on time.
Making it easy for customers to pay can also go a long way. According to business experts, you want to provide multiple options whether via a credit card, check, cash or bank transfer for payment. You can also implement automatic billing and provide a one click payment service on your Website.
If all efforts fail and you still find yourself chasing your payments, then it’s time to get a bit creative. Grant Cardone, author of If You’re Not First, You’re Last, says if at all possible try to collect the money in person. Doing that gives you an opportunity to get face to face time with the client. If that’s not an option, then utilize live video calls to get to know them better and discuss payment. “It’s easy to put off someone you haven’t met,” says Cardone.
Read more: Tips for Collecting on Invoices