Encouraging Your Clients to Pay Their Bills on Time
Delinquent accounts are a frustrating yet common problem for small business owners. More than an inconvenience, they can put a strain on your cash flow and cost you money — after all, they are in effect interest-free loans to your clients. Solving the problem is not always easy. So here are some solutions for staying on top of your clients’ payments. Get it in Writing:It's important to establish your expectations in advance, ideally in the form of a signed contract. This is the best way to avoid misunderstandings down the road. Establish not only your rate but also your invoice schedule and late payment terms. Discuss payment options beforehand with your client and consider whether partial pre-payment or a retainer might be acceptable. Make Payment Easy for Your Clients: Try to use an invoicing method and payment options that make payment effortless for your clients. Invoice regularly and promptly, and make sure your invoices are taking the shortest route to the appropriate individual. Consider whether direct deposit, credit card or online payment options like PayPal or Google Checkout might streamline things. Don't forget to take additional service charges into account, and adjust your billing model where necessary. Automate Your Invoicing:There are a number of online invoicing platforms available that are designed to help lighten your accounting burden, particularly if you are acting as your own accounts payable department. Online invoice delivery is a key feature of most of them, with available features such as regular mail and printed invoice options, project management, time tracking, online payment and aging accounts reports depending on the platform. Some popular contenders in this arena include FreshBooks, Harvest, Simplifythis and Blinksale. Incentive vs. Penalty:The difference between a late payment penalty and a prompt payment discount is more about terminology than accounting. They both accomplish the same thing, but convey a different message. Raising your rate by a small percentage and then offering that back as a discount can make prompt payment look like an attractive option. You can, of course, include both: a prompt payment discount if your invoice is paid within 30 days, for example, and interest charges which take effect at 60 days. The personal touch:Don't let your clients get too far behind before getting in touch. A phone call to your client contact is an appropriate first step. Always keep the value of your business relationship in mind. It's possible to give them the benefit of the doubt without absolving them of their responsibilities, or allowing them to take advantage of you.