Ever Heard of Opportunity Cost? How to Get Customers to Pay on Time
Virtually any type of business, whether big or small, is going to experience challenges with clients who do not pay their bills on time. This is a major, but avoidable, opportunity cost. Delinquent payment issues are actually quite common in business. Most freelancers reported they had problems getting paid on time in a recent survey.
Late payments are more than just an annoyance. In many cases, clients’ failure to pay for sales or services rendered can damage a company’s cash flow. This makes it harder to realize a profit, or even jpay the bills.
However, there are actions you can take to ensure tour company gets what it is owed. Here are six tips get your customers to pay their bills on time.
Tighten the Timeline
More often than not, overly liberal payment cycles (i.e. net 60) are detrimental to a company’s cash flows. You bills for rent, taxes, payroll and utilities are going to come in on a shorter timeline than that, and your company needs the cash on hand to meet them.
Moreover, for clients that are prone to pay late to start with, a liberal payment policy will leave your company in an exceptionally bad position to meet its accounts payable commitments.
To improve your cash flows, consider requiring payment immediately upon a sale, or when services are rendered. For exceptionally long projects, especially those requiring significant material or labor inputs, consider a deposit up front, or installment payments at certain milestones during the project. This will ensure that your cash flow is steady, and your business can meet all of its obligations.
Outsource Your Billing
Managing billing is an art in itself. And if you’re an entrepreneur, you may be terrible at it. If that’s the case, consider hiring an outside company to support you with billing efforts.
Due, for example, has an automated invoicing service that can provide tremendous support to companies with managing and tracking client payments. Other companies, for a price, will manage your entire billing process as well.
Outsourcing your billing with a company that specializes in this task can help ensure that your clients pay on time. Additionally, if you are freed from this time-consuming task, you can dedicate yourself to other critical aspects of your business, and help make it more successful.
Accept as Many Forms of Payment as Possible
If you make it easier for your clients to pay you, you will almost certainly get paid faster. These days, accepting cash or checks is simply not enough, in fact, vendors who do not accept other forms of payment, such as credit cards, may never make any sales that require payment at all; cash-only businesses lose an estimated $100 billion in sales each year.
To avoid lost sales, and increase the opportunity for clients to pay you on time, accept a wider variety of payments. As a minimum, find a reliable credit and debit card processing service, so you can accept these exceedingly common payment methods from customers. Payment services such as PayPal can further extend your customers’ options, and increase the chances of you getting paid on time.
Finally, it is worthwhile for your company to consider accepting cryptocurrencies as a form of payment, since these systems are becoming increasingly mainstream; companies as varied as Amazon, Tesla, and Victoria’s secret now accept them, so how about yours?
Communicate Effectively for more Opportunity Cost
You stand a better chance of getting paid on time if your clients know how much they owe and when, and get a friendly reminder when they fail to pay a bill when it’s due.
Ensure that your invoices are clearly written and easy to understand; plain English in lieu of “accounting-speak” is the optimal choice here.
Additionally, ensure you send message prompts the moment a payment is overdue, via phone, email and text. More often than not, a simple reminder will be enough to put a customer in motion to pay a bill that is past due. Also, consider leveraging technology to automate your billing system, so that your company’s computers track all of the bills due, and send out the initial prompts when customers are late on a payment. This will save you time, and enable you to focus on other aspects of the business.
Cultivate Relationships With Your Customers
A good way to ensure clients don’t stiff you is to make sure they know who you are. Cultivate relationships with customers before, during and after making sales. If your clients know you and respect you, they’ll likely remember to pay their bills.
When one of your clients fails to pay on time, reach out directly to them and make contact. Sometimes direct communication will be enough to get the client to pay up..
Sometimes your clients simply cannot pay you due to their own financial problems. If that is the case, try to work out a payment arrangement that you both can live with.
Incentivize Timely Payments
A great way to get clients to pay on time is to simply reward them for it. Offering incentives for paying on time can help to ensure positive cash flows and keep your business on track.
Offer discounts for payments made at the earliest point in the billing cycle. Also, provide incentives for clients who pay their bills up front, prior to the sale or services rendered. You can also provide better credit terms to customers who consistently pay on time. Furthermore, you can even offer some sort of gift as a reward incentive for timely payments.
Getting paid on time for sales or services rendered is a critical component of your business. So if late payments are stressing you out, take heart.
Any one of these tips here, or a combination of them, can help reduce late payments and improve your cash flows. Consider trying one or more of them today, and get your clients paying you on time right away.