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7 Tips to Collect Money from Customers

 

tips for collecting money from clients
 
Ok, you are an honest hardworking self-employed small business owner. You love your work and have no trouble finding the customers and jobs required to fill up your daily schedule. So why are you having cash flow issues?

Maybe the reason is because you are not getting paid!

It is a known fact that every dollar owed to you by customers is a dollar that is not in your bank account. That can be equal to your next 3 months of operating costs or more.

When you are a small business, the fact remains that you need that money now and not later. In fact, many businesses fail because of their inability to collect the money owed to them.

It is One Thing to Do the Work, It’s Another Thing to Get Paid!

Look, collecting money is not what they trained you to do when you were learning your trade, but if the truth were known, they should have made you an expert in that as well. Maybe then you would not have cash flow issues at all.

I do not want to linger on discussing the problem. I want to give you 7 tips on how to avoid and overcome these issues going forward. Just before we dive deeper into those tips let me tell you a story about a friend of mine who is self-employed and very good at his trade.

While we were having coffee a month ago, he shared a little about his business with me. I gleaned that he had a huge problem causing cash flow issues for his business.

You see, he hated asking people for money that was owed to him and he had held back issuing invoices for as far back as 6 months.

He had a mental block on getting paid! I know that this sounds absurd, however, I can attest to the fact that this is true.

Over the following few weeks, we resolved the problem by creating a ‘Standard Operating Procedure’ for money collection in his business.

He outsourced his accounts receivable and set up a procedure that was a sure-fire way to make things operate smoothly.

7 Tips to Make Sure Customers Pay On Time and How to Handle Those Who Don’t

1. Only Give Credit When You Have To

Many business owners give customers credit when they do not have to. For some it is easier to just give the credit than to ask for the bill to be paid now – and this can become a habit.

You need to understand that giving someone credit on a $500.00 bill means that the $500.00 will not be in your bank for some time, even if they pay you on time.

But some people do not pay you on time, and that has extra consequences such as tying up resources and cost chasing the money, stress on your cash flow (and you) and potential bad debts. At the very least it is going to take more time in managing accounts receivable.

So, get payment immediately whenever possible! Then the rest of these tips will not be necessary.

2. Do A Credit Check

Before you go and give credit to someone you don’t know, do a credit check. You will be surprised just what information that can provide.

Sometimes the amount might not warrant it and you can decide what amount that is. However, you do not want to be left holding the bag on a few thousand dollars, only to find too late that this could have been avoided by a simple credit check.

In today’s marketplace credit checks are quite common and inexpensive.

By the way, if the amount is not worth a credit check, why are you not getting paid on delivery?

3. Ask for Partial Payment in Advance

You can call it a partial payment or a deposit, but whatever you call it, it is a good thing to ask for.

If the customer has “skin in the game’’ they are more likely to pay up in a good timely fashion.

4. Issue Invoices Immediately

The sooner you invoice your customer, the sooner you are likely to get paid.

As I said earlier, my friend had unissued invoices dating back several months. The customer cannot make payment if they don’t have an invoice. And some people take the attitude that if it took you 2 months to get the invoice out, they can take at least 2 months to pay it.

Make invoice preparation a daily routine rather than the old style “at the end of the month”. Just this simple step can help save your bacon. The old-style end of the month allowed the customer up to and additional 30 days grace, tying up your cash for up to 2 months!

Email it to the customer immediately!

5. Be Clear and Concise

You know it really makes me angry when I receive an invoice from someone, and it seems to be written in a different language.

For example, the description gives me a code like “It-645-097-112A.”

Ok, I realize that this may make accounting easier but for the customer it only delays the payment process.

State exactly what the terms are (such as ‘Due Upon Receipt’) clearly.

And avoid adding the old ‘30/60/90/days’ as this gives the perception that you allow these time frame payments.

6. Reward, Reward, Reward

Let’s face it folks, we all like being rewarded for doing something and being rewarded for paying a bill is no different.

For those who would decide to wait to pay a bill for as long as they can, this may entice them to pay earlier and for those who would normally pay on time this helps them to pay early as well.

For example, if you have given them a 30-day window for payment, you can tell them that they can receive a 2% discount if they pay in 14 days. And make sure you let them know what that 2% is in hard cash. If they owe $3000.00 then the 2% is $60.00. That $60.00 is cash money in their pocket and it helps put money owed to you back in your pocket quicker.

Having said that, you should consider this tactic carefully, as this also takes 2% off your gross sales. Depending on your profit margins, this can affect your bottom line a lot more. So do the maths first and analyze whether you need to.

7. Stay on Top and Stay Alive

Have a system in place to stay on top of every invoice. You may wish to set up an email reminder that their bill due date is coming up in 7 days.

Once a customer falls behind, do not wait. Give them a friendly reminder by email or just a quick call. If they still do not pay, you need systems for follow-up, including decisions on when you take stronger action.

It is always important to stay visible so doing social media and staying in front of the customer is always important.

You need the cash coming into your business so you can pay your bills! So, getting paid is equally as important as finding new business. Without either of these your business is in trouble.

So, if you are not able to do these things yourself, such as my friend, then set up the process and find or train someone to do it for you.

It is that important!

This is the final article in our monthly series on managing cash flow. Check out our other articles as follows:

Cashflow – Why Is it so Important
The Difference Between Cash Flow and Profit
Cash Flow: A Two-Sided Coin
6 Tips to Understand Cash Flow
 

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