Having too many non-paying customers can sink a company. Find out how to avoid this fate.
Whenever you work with an invoicing system, you’re bound to run into at least a few delayed payments. But the more it happens and the longer it goes on, the harder it becomes for your business to grow.
Take a look at the strategies and techniques that may help prevent unpaid invoices.
Discussing Costs and Terms Upfront
Customers cited that one of their reasons for not paying on time is because they’re not clear on the costs. That’s why it’s critical to discuss all costs and payment terms upfront during the transaction.
Clarity can help to set payment expectations and build more trust between buyers and sellers or service providers.
Collecting money upfront may not put all customers at ease. But if delayed payments are too familiar in your industry, billing them first is a good way to avoid this problem.
It doesn’t have to be a full payment upfront. Even charging a portion of the money owed can help protect a business from running out of cash.
Automating the Invoicing System
Invoices may take a while to generate and send out. The fact is that the sooner that a customer can receive his or her invoice, the quicker that the payment can come through.
That’s why using an automated invoicing system can help speed up the process.
And when it comes to invoicing, know that the best time to send an invoice is right after wrapping up a job.
Offering Payment Plans
Some people don’t pay on time because they are unable to. Make it easier for them to fulfil their side of the transaction by giving them options for payment.
More and more small businesses nowadays offer customers payment plans. Letting them make payments in multiple instalments encourages them to do so, as it’s easier on the budget compared to paying in full in one go.
Adding Late Fees
Another way to incentivise people to pay on time is to implement late fees.
The idea, however, is not to make even more money but rather to encourage people to pay on time or else. After all, no one wants to pay such penalties.
It’s also possible to add more severe consequences for missed payments, such as withholding services.
Giving Limited Lines of Credit
It’s tempting to offer a line of credit to a loyal customer. But it’s not something you should do for new customers.
It’s because a line of credit should imply a certain level of trust – something that’s yet to be established with them.
Another good way to incentivise people to pay promptly is to offer rewards. Small discounts for paying within a week or 14 to 30 days, for example, can get people to take care of their invoices faster.
Of course, the discount and time frame can be adjusted based on the company’s financial situation.
Stop Losing Money to Poor Cash Flow Management
Businesses that don’t get paid on time are often those that have poor financial management.
The good news is that you can turn things around if you understand what can help customers pay faster and what can cause them to delay or default on their payments.