Service-based businesses have long dealt with a dilemma when it comes to serving customers. Everyone from pest control technicians to utility companies sends a monthly invoice and collects payment. When payment doesn’t arrive on time, those businesses must then set a timeline for cutting off those services. If you cut off services too quickly, you could lose a customer who simply misplaced the bill or forgot to pay it. If you continue services for another month or longer, you risk not being paid for that month, as well.
Whatever you decide, it’s important to have policies in place that you enforce across the board. Having policies means you can print them on your invoices to make it clear from the start what you’ll expect from customers. Also include your payment turnaround expectations on your website and in early communications with your customers. Here are a few things to keep in mind as you set payment terms for your customers.
Have a Plan of Action
Your first step will be to set up a plan of action. This will help you include information on your invoices, which should include a due date, as well as information about what will happen if the bill isn’t paid on time. Will you then allow a grace period before services are cut off? If so, you have the choice of making that grace period clear or keeping it internal to encourage customers to avoid missing the deadline. Some businesses add an extra fee if a bill isn’t paid by a certain date making it clear that after the due date, the amount due will increase to a slightly higher total.
Determine Your Cash Flow Needs
As you consider what turnaround time you’ll allow, determine what your business can withstand. Draw up a budget and determine the minimum amount you’ll need each month to meet your business expenses. You’ll likely find that you can withstand a certain percentage of late payments each month without missing payments of your own. By watching these numbers month after month, you’ll be able to determine whether you can let your grace period policies slide or you need to enforce them. You may decide to send one more late notice to a customer who is 60 days late, for instance, rather than stopping services at the 60-day mark.
Be Prepared for Exceptions
Utilities and large companies handle late payments through an automated system based on strict policies. With so many customers, they can’t personalize the experience. Smaller businesses can take a more personal approach, however, since they often have a one-on-one relationship with some of their customers. Instead of sending out late notices and cutting customers off, consider picking up the phone or sending a personal email and asking about the late payment. This tactic will often get much further than an impersonal approach, since letters and automated emails are easy to ignore.
If you provide services to customers, you’ll likely eventually find yourself in the position of deciding whether to continue to perform those services when payment is overdue. By having policies in place that will guide you during those situations, you’ll know how to handle them. Don’t forget, however, that personalized service is what sets small businesses apart and contact your customers directly when you’re concerned about late payments.
