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How to Get Paid on Time When Selling to Small Businesses

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How to Get Paid on Time When Selling to Small Businesses

I regularly get asked the question “What do I do with xyz company to make sure I get paid, 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. While the Australian Small Business and Family Enterprise Ombudsman has been working hard to get Small Businesses paid faster by large corporations, it’s still up to you when you’re selling to Small Businesses.  

These three key areas 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. 

We need to apply this same process to our clients or customers. Request a credit application before you sell to your new client or customer and then if the information looks suss or the references appear a bit dodgy you can decide not to give them credit.

You can still sell to them but insist on payment up-front, at the time of purchase.

Consider the alternative, you sell to them and then spend your time and energy chasing up payment only to end up eventually with no payment or only part payment. Which would you prefer?

Let’s take an example of a sale of $ 20,000. To make that sale, your costs are $ 14,000. If 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 and debt collection or legal fees.

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 paid, 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 tip 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 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. They’re the type of customer you want to be attracting into your business.

3. Communication and follow up to ensure you get paid.

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 part of being in 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 a 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, 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 more effort you put into checking out the financial viability of your potential new client or customer before providing them with credit, the better you’ll be placed to ensure payment.

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