Customer Payment Tips

shutterstock_129059471Accounts receivable is the most important department in any business, as sales are not sales until payment is received. Late payments not only affect your cash flow, but can also prevent you from paying your own bills on time.

This article looks at ways you can encourage your customers to pay on time, how you can make it easier for them and when you should draw a line and call in the professionals.

10 tips on getting your customers to pay their bills

There will always be customers who do not pay on time, but there are things you can do to encourage the majority to pay you closer to the due date. The following are ten simple ways to reduce the time between issuing the invoice and receiving payment.

  • Spell out your payment terms on every invoice and contract. If a customer sees you are serious about timely payment, they are more likely to pay promptly. If you have clearly stated your terms upfront, they also have no grounds for disputing them later on.
  • Include a penalty for late payment. It could be a financial penalty or service-related (i.e. warranty will be voided). State this clearly on your invoice, along with any other penalties, such as collection costs and a customer will be more likely to pay promptly to avoid them.
  • Offer an incentive such as a discount for paying early. Many customers will jump at the chance to save 10% or 20% and while you will have to bear the cost, it can be built into your pricing and absorbed.
  • Have new clients fill out a customer application form. This will not only give you an indication of whether they’re likely to pay on time, but can also give you valuable information about them, if you ever need to chase them for payment.
  • Do a credit check on larger clients and if their payment history is less than perfect, ask for payment upon delivery, or if you can afford to do so, err on the side of caution and do not take their business.
  • If your sales staff are paid a commission on each sale, make it conditional on client payment. This will discourage them from taking on bad credit risks just to make a sale and can even turn them into debt collectors for you.
  • Don’t put all your eggs in one basket. Try and develop a wide client base so that someone is paying you all the time, rather than taking on a large client as a core customer and being at the mercy of their payment whims.
  • Appoint someone within your business to handle late payments. Choose someone who is articulate, personable, strong-willed and sees it as a challenge, as this type of person will have the most success.
  • Automate your payment reminders. This can be done electronically and will free up your staff to concentrate on making money for your business, while ensuring that a timely collection process is followed.
  • Have a timely collection process. Issue invoices promptly, follow up late payments with  letters and phone calls and if payment is still not forthcoming, hand the debts over to a collection agency.

3 ways to make the payment process easier for customers

The best way to deal with late payments is to prevent them from occurring in the first place and there are several ways you can make paying on time easier for your customers.

1.    One way is to have them sign up for recurring direct-debit payments. If they are a regular customer, they should not have any objection to this and you can even offer them a discount incentive for doing so. Direct-debit payment once a month ensures you get paid on time every time, which makes things easier not only for you, but for them as well.

2.    If direct-debit payments are not an option, another way to encourage your customers to pay faster is to email their invoices to them rather then posting them. This not only speeds up the process, but provides a clear record of when the invoice was sent, should they claim to have not received it further down the track.

3.    A third option is online payment via credit card. If you have an e commerce facility on your website, the payment process is reversed and the goods are not shipped until the credit card payment has been processed and approved. This is a much more satisfactory way of doing business than supplying the goods and then waiting for payment.

When to call in a debt collection agency

Despite all your efforts, there will inevitably be those clients who have still not paid after all deadlines have passed and all attempts to elicit payment have failed. This is the time to call in the professionals and although many businesses view this as a last resort, it should actually be done fairly early in the process.

Experts recommend you involve a debt collection agency after 90 days of non-payment, as by that stage, there is little likelihood of the client paying within 120 days either. The longer you wait, the less seriously the debtor will take your letters of demand and the less inclined they will be to pay.

A debt collector should be involved early anyway, because with the resources and expertise at their disposal, they have a much better chance of collecting the debt than you do. There are also several other good reasons for outsourcing debt collection:

  • By distancing yourself from the debt collection process, you stand a better chance of retaining the client and repairing your relationship with them.
  • Debt collection agencies are fully conversant with the latest collection and privacy laws, which you might inadvertently contravene during your own collection efforts.
  • Most debt collection agencies work on a ‘no collection no fee’ basis, so you are not paying anything upfront and anything they recover from the client, even if it is not the full amount, is money you would not have seen otherwise.

Having easy payment methods and an efficient debt recovery process is important for every business. It’s hard enough to run a successful business as it is, without having to divert precious resources into recovering what is rightfully owed to you. Hopefully the information in this article has given you some ideas on how to boost your own cash flow by taking control of the customer payment process.

Jarrod Kagan
Having practised at a major law firm before moving across to Probe Group (one of Australia’s most prominent credit management organisations), Jarrod has over 8 years’ experience in credit management and debt recovery. He now holds the position of Head of Business and Compliance and as a qualified Lawyer, his skill level and experience covers the technical aspects of credit management and debt recovery, including: best practice, compliance, legislation, strategic analysis and industry specific detail.