Cash is King and everyone wants to get paid on time, but how come you are always left to the last?
Before you outsource to a reputable debt collector or litigation agent, there are a few things you can do yourself, to get your customer to pay you on time, rather than have the matter run into a delinquent debt.
Here are 10 quick ways you can encourage your customers or clients to start paying you on time:
1. Do a Credit Check
If you are going to offer credit, do some snooping to find out if your new customers are worthy of your time and effort. Don’t bother running one for small transactions, but if you’re entering into a long-term relationship or one with a large impact on your bottom line, run a credit check. It might not guarantee payment, but it can help you avoid problem clients and customers up front. Contact your potential client’s past business partners and make sure those partners had positive experiences and were able to get paid in a timely manner. Invite your potential client to do the same with your past business partners as well.
2. Get Money Up Front
Avoid offering credit altogether and get your money paid at day one. This can apply to either a product or a service offering. If you are good at what you do, your customer will be willing to pay in advance. If your new customer won’t pay in full upfront, get an agreement for them to pay half the bill at the onset of the project and the other half after completion as a sign of good faith.
3. Invoice Your Client as Quickly as Possible
If you do offer credit, you should send your invoice to your client as soon as possible. Don’t wait until your bookkeeper is ready or your accounts department gets around to it. Automate your invoicing, using products such as Xero, MYOB, Debtor Daddy or Debt Chaser. By Automating the process, your invoices will be sent out automatically, as soon as you have completed your project or provided your products.
4. Be Flexible With Payment Type
While some clients want to pay by check, credit card or online payment system, others prefer direct deposit. Opening up your payment options gives clients every reason to get you paid on time. If your customers purchase goods from you, the small fee you pay to accept credit cards will cost lesser than the cost to hire an attorney or an outside agency. Let Visa or Mastercard deal with collecting debts while you stick to what you do best: running your business.
5. Provide a Discount for Early Payment
Reward your good customers by offering a discount up front, if they pay on time. This can be a percentage of the total invoice amount, which often adds up for clients as a cost advantage. For example, a 2% discount for early payment may entice a client to pay the invoice earlier. It doesn’t sound like much, but a good accountant will put this invoice at the top of their pile to pay immediately.
6. Put Penalties in Your Contract
If they do not pay on time, they must be penalised. Otherwise, you are offering free credit. You are not a bank, so don’t let them treat you like one. It’s essential to have a written agreement between you and the client that clearly outlines the terms, deadlines, fees and other essentials. This allows you and the client to get in sync regarding when invoices are sent and how long they have to pay. You must emphasize these penalty terms on every contract and on each invoice. By having your customer agree to the penalty terms in writing, you help ensure that your invoice will go to the top of the list of payments, since your customer does not want to incur any penalties. You can contact ADC Legal to get your terms re-written to protect yourself.
7. Don’t Waiver on Payment Terms
Now that you have set your penalty terms, stick to them. If your client still does not pay, ask yourself, “Do I really want this sort of customer/client?” I know what my answer would be. Although life happens and you may offer a grace period once, remind the client that payment terms have not changed and the penalties will apply, regardless of other circumstances.
8. Make Polite Contact
Before you call in the debt collectors or the litigation agent, it’s a great idea to simply contact your debtor. As mentioned above, it’s totally possible they just forgot. In this instance, a polite reminder can do wonders.
But no matter what, debtors are much more likely to pay if you’re positive and polite. A phone call, email, or letter that simply asks them if they realize they’re behind on their payments is the best way to begin.
The hard truth is that sometimes, you’ll end up with a delinquent debtor. No matter how diligent you are upfront or how much care you take selecting business partners, you can end up dealing with the debt collection process. But by following a few simple hints mentioned above, you can effectively reduce the amount of problem debtors you’ll have to deal with.
9. Keep a Good Rapport With Clients
Dealing with clients means you’re in a business relationship, so focus on developing good communication and understanding each other’s side of the partnership. If and when payment for an invoice becomes an issue, a healthy relationship can provide a way to work through it and help both parties reach an agreement without fracturing the relationship. Maintaining positive relationships with clients may even prevent issues from ever arising.
10. Outsource to a Debt Collector Quickly
As soon as your customer does not pay or they have reached the end of your credit terms, this is when you should outsource immediately, to a reputable debt collector or litigation agent. Sometimes, all it takes it the “third party effect” to get an invoice paid. This is where you outsource the accounts receivables to a third party, such as a debt collection agent. This sends a strong message to your customer that you mean business and that you want to get paid.
|Adam Stewart is a Debt Collection Expert and owner of ADC Legal Litigation Lawyers, a legal practice specialising in commercial advice and litigation, debt recovery and insurance claims recovery disputes. For more information, email us at email@example.com or call 1300 799 820. Talk to us about your litigation or dispute concerns via Skype at adclegal.