We all have tough times in business financially, and the worst thing we can do…
3 Must Do’s to Get Paid on Time
I regularly get asked the question, “What do I do with XYZ company, they owe me $$$, and it’s way overdue?”
I also have situations where clients don’t pay me on time, and I understand the time and emotional costs in chasing up the payment, not to mention, the potentially disastrous impact it has on your cash flow and ability to pay the bills.
There are three key areas that will make a big difference to your outstanding invoices:
1. Credit checking before providing credit.
When we apply for credit with our suppliers, the chances are we’ve had to fill in an application form with details of our financial viability, references and possibly provide a directors personal guarantee.
Why then don’t we apply the same to our clients or customers?
Think about it this way. You request a credit application before you sell to your new client or customer and the information looks suss, or the references appear a bit dodgy such that you decide not to sell to them. Compare that to not requesting any info, you sell to them and then spend your time and energy chasing up payment only to end up eventually with no payment or only a part-payment. Which would you prefer?
Let’s take an example of a sale of $20,000. In order to make that sale, your costs are $14,000. In the event that all goes well, you’ll make a $6,000 profit on the sale. But if it all doesn’t go well and you don’t get paid any of the $20,000, then this sale just cost you $14,000. If you get paid say $10,000, then the sale still cost you $4,000. And these costs are just the direct costs of the sale; you’ve still got all your overheads to pay.
2. Clear terms and conditions.
Before the first sale, make sure that your new customer or client is well aware of your trading terms. The important point is to be clear and precise about when you expect payment and what will happen if they don’t pay on time.
I provide 7-day terms on my invoices as I invoice after the work is completed. One client last year asked for work to be done urgently to assist in a bank application. We dropped our planned work, did what was required and invoiced. Then I spent the next three months chasing for payment. Just recently, they’ve asked for the work to be done urgently again this year. We’ve done the work, and their invoice is already 16 days overdue. Needless to say, as soon as I do get payment, I’m sacking this client. I don’t need the stress, the worry and the wasted time chasing up payment; it’s just not worth it.
On the flip side, I have another client who asked for 30-day terms. They pay their invoices at the end of each month. I agreed to this, and for the past four years, I’ve received the payment at the end of each month. I don’t need to do anything more than issue the invoice, and I know the money will be in my bank account at the end of the month.
3. Communication and follow up.
Once an invoice is overdue, it’s time to get onto chasing it up, straight away. I know chasing invoices is not everyone’s idea of fun, it’s certainly not mine, but unfortunately, it’s a part of business.
Get on the phone, have a conversation with your client or customer. Check whether there’s a reason the invoice hasn’t been paid. Not so long ago, I found that an invoice hadn’t been paid because there was an issue with the wording on the invoice. If I hadn’t followed up, who knows when they would have told me why they weren’t paying it.
If there’s no issue with the invoice or the product sold or service delivered, it’s then down to a cash flow issue or approval issue at their end, and you need to politely work your way through that. If necessary and you’re comfortable to do so, suggest that you’d be ok with accepting weekly, fortnightly or monthly payments to make the amount easier for them to pay. Whatever is agreed, keep those lines of communication open and follow up.
In summary, the more effort you put in upfront checking out the financial viability of your potential new client or customer, the better you’ll be placed to ensure payment. Make sure you have clear and concise trading terms that are provided to each new client or customer, and the key to it all, is to have open lines of communication and regular follow up calls when payments aren’t received on time.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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