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Exclusives
TAKING CARE OF BUSINESS
By Henna Taylor
Show Me the Money: Eleven Tips for Getting
Clients to Pay Your Invoices
Most would agree that business ownership is a delight even with
the many responsibilities involved. One of the toughest challenges
of being self-employed is getting paid. When you are an employee,
the paycheck comes like clockwork. But when you work for yourself,
collecting your invoices on time is critical for the survival of
your company and essential for your company’s reputation and
continued growth. Here are suggestions to ensure that you get paid
what you’re owed, when it’s owed.
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Have a credit policy in place as part of the contract. “It’s
important that you don’t just give a copy to each customer,” advises
Gloria Abbott, a collections consultant. “Be sure to discuss
it with them as well. Sometimes this can be difficult especially
when talking to a long-time customer.” Abbot says it is
the single best way to reduce late payments.
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Request payment up front. Some clients will pay you
in advance if you make it worth their while. It certainly couldn’t
hurt to ask. Offer your clients a 10 percent discount for paying
in full at the time they sign the contract.
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Project Based Billing. If you do project-based work
or consultative work, set up a plan where clients can pay an
initial fee at the beginning of a project, an installment after
certain milestones are met, and the final fees at the close
of the project. This will help plan cash flow as well as ensure
that at least a portion of the work is paid upfront.
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Shorten your billing cycles. Many businesses are notorious
for extending credit for 30 or 60 days, but this doesn’t
have to be your rule. Know that it’s ok to create different
terms. For instance, you may request payments in full within
15 days rather than the customary 30 days. As long as your customers
are aware of and agree to your terms, you can establish whatever
timeframe that works best for you.
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Don’t ignore unpaid bills. “Many small
businesses are afraid of insulting their customers, “says
Abbott, “studies show the longer a bill goes past due,
the more uncollectible it becomes.” According to one survey,
you will lose 10% of receivables that are out more than 60 days;
67% after 6 months and up to 78% after a year. Considering these
statistics, it is a good idea to move into action before it
become 30 days old.
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Call the customer once a bill is 30 days overdue. “A
phone call is 10 times more effective than a letter,” explains
Abbott. She admits this can also be difficult for business owners.
When it gets right down to it, many business owners are reluctant
to confront customers about money owed.
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“ Don’t apologize when you call, but be pleasant,” recommends
Abbott. Remember, you have a right to the money that is owed
you. Listen to the customer and be sympathetic. There’s
no reason to get into an argument, even if the customer is unreceptive.
Antagonizing the customer will rarely get you paid. Your goal
is to be put on the top of their bill payment priority list,
not the bottom.
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Negotiate the terms, but never negotiate the amount. If
it looks like your customer will have a problem paying, be flexible.
Ask if they can send the first payment today and then stretch
the rest of the bill out over 3-4 months.
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Join an industry group. Numbers represent strength.
Even a solo food caterer or day care owner needn’t go
into payment battles alone. An industry group has resources
to help you track down deadbeat clients and get paid. Check
your local chamber of commerce or Small Business Association
for more details.
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Hire a professional. If you don’t receive a response
to your requests for payment, you may need to hire a professional.
Be aware that collection agencies routinely keep between 10
and 50 percent of the money they collect, but in some instances
getting some of what you are owed is better than getting nothing
at all. This may cause irreparable damage to your relationship
with the client, but that might be Ok; after all you probably
don’t want to deal with a known deadbeat and credit risk.
As less costly option would be to find an attorney fresh out
of law school (who is not all that expensive yet) who, for a
small fee, will send out letters to non-paying customers. “You’d
be surprised how an attorney’s letterhead can often get
results.
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Take them to small claims court. If you keep getting
stonewalled this may be the best resort. In 30% of cases, Abbott
says, debtors pay up before they go to court. She says the advice
she stresses more than all other advice is, “Stop worrying
about offending people who aren’t afraid of offending
you over money they owe you!”
When should you go to collections? Since you generally only get
a small amount of the amount owed, do this only when you are convinced
that payment by any other means is impossible. Keep in mind that,
it is sometimes best simply to write off a bad debt, explains Abbott,
especially one that looks like there is little hope of collecting.
The above advice will not guarantee that your collection problems
will cease. However, it should help speed payments and that will
keep your cash flow going during these challenging times.
© CEO Woman Magazine 2006. All rights reserved.
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