Maintaining steady cash flow is one of the toughest challenges for small business owners and managers. Most of the time, landing the project or making the sale is easier than getting paid promptly. And, unless you are a bank, you should not be financing your customers.So how do you urge your clients to pay you promptly without antagonizing them? Here are some strategies that I have put to use with great effect.
The first step is to set clear expectations by sending everyone your newly payment policy. Send a letter and an email to increase the impact. In fact, holiday season is a great time to do this. Just explain that these new payment policies take effect on Jan. 1, 2012. If clients or customers balk, it might be time to find new ones.
Ask for a Deposit
One of the quickest ways to boost cash flow is to ask for a deposit. It’s easy to do, no matter what you service or product you are providing. For example, I require a deposit when I accept a speaking engagement or begin a project for a new client. When I’m producing videos, I have to pay my production team promptly, so I need that money up front. If you think you can’t ask for money up front, consider this: a Michigan-based harpist I profiled in my 201 Great Ideas book requires a 50 percent deposit before even booking performance.
You can be a bit flexible about the amount of the deposit. Ask for 50 percent down, but reduce it if necessary. Getting a chunk of money in the door before you start the project or ship an order is a great way to ensure cash flow and sleep better at night. If clients or customers refuse to pay even a percentage up front, you should walk. Collecting deposits is a common business practice, especially in these volatile economic times.
Invoice Twice a Month
Some savvy consultants I know use this strategy. Rather than billing every 30 days, send out an invoice every two weeks. This breaks up the payments due into smaller amounts and keeps the cash flowing. This may not work for every business, but it’s worth a try.
Another tip: get to know the person who actually cuts the checks. Make contact with them in person or on the phone. Thank them when the checks arrive. Send a holiday gift or thank you note, if appropriate. Being really nice to the person who issues the checks is a great way to increase the odds of being paid promptly.
Set up a Merchant Credit Card Account
Although you may have to pay credit card processing fees of up to 4 or 5 percent per transaction, it may be well worth the cost to start accepting credit cards. Many business owners and consumers prefer to pay with a credit card to build up points for free travel or hotel rooms.
Your bank or financial institution can set up a merchant credit card account for you. You might also look into mobile payment processing options. There are lots of cool ways to scan credit cards and transmit the information to a financial institution via smart phones. But remember, there are some liability issues on these mobile payments, so check with your banker. Make it easy for people to pay you and they are more likely to pay you promptly.
And try to be paid via direct deposit whenever possible. Most big companies prefer this method over cutting paper checks.
Offer an Early Bird Discount
We all love a bargain. Providing a discount to clients who pay promptly is a proven tactic for boosting cash flow. For example, a financial software developer I know offers her clients a 10 percent discount if they make one annual payment. She admits she was surprised at how many clients opted for this deal. On the flip side, start charging interest on late payments. As long as you specify that you are going to charge these late fees, you can do it. Customers will probably squawk, but it may get their attention and encourage them to pay you promptly.
What Next?
Printing your own postage can help simplify your billing process. Find out how you can weigh outgoing mail and print postage from your desk with pbSmartPostage.
Jane Applegate is an expert on small business marketing. Follow her @janewapplegate and visit www.theapplegategroup.com. Jane is not a Pitney Bowes employee and shares her insights on this blog as a paid contributor.
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