8 Ways to Get Paid Faster by Your Clients
Most businesses don’t have trunks of money sitting around, filled with unlimited cash reserves. On the contrary, juggling cash flow and managing your accounts receivable (AR) is probably a necessary evil you detest and that takes up way too much of your valuable time.
When you provide a service or sell a product, you invoice your client and expect them to pay on time, but this does not always happen. Cash is precious and delays in receivables can upset a small- to medium-sized business. So, what can you do to get paid faster by your clients?
1. Keep your terms short
Whether you do it up front or as part of your standard practice, keep invoice terms short and tight. Do not assume that a net 30 or net 45 term is required. Go ahead and put in net 10 or due upon receipt if you want. You might not get paid as requested, but here’s the reality: accounting clerks often simply put the invoice into their system for payment based on the terms on the invoice they see. The fact is if you don’t ask, your customers will not volunteer to pay you early.
2. Extend less credit
Why not collect everything at the time of sale? After all, if it’s a service that has been fully rendered, you are fully due, and payment is due then and there. If you sell a product, you have already absorbed the costs of R&D, manufacturing, inventory, sales, and distribution. Why should you then also give a buyer all the benefit of time while you wait to collect? This approach could reduce the number of clients, but if cash is what you need, it is better to sell less for immediate funds today than to borrow money at a higher rate, hoping to make it up in volume.
3. Invoice sooner and more often
The more frequently you invoice, the more frequently customers will pay. It is perfectly fine to bill twice a month, or perhaps even more often in some industries. If you provide a particular service, go ahead and bill after every service rather than sticking to a calendar date. The sooner you invoice, the sooner customers pay.
4. Change how you accept payment
The point here is to make it as easy as possible for someone to pay you. Cash is great because usually there are no fees. If cash is not feasible, online transfers are nearly immediate and can be very low cost. Even better, talk to credit card processors to see how they can help you. For example, some credit card processors settle funds more quickly when you swipe a card rather than having a card on file in your system. And processing fees might be lower, too, because there is less risk for them in the transaction.
5. Send reminders
Squeaky wheels get the grease. Avoid past-due receivables by staying in front of your customers’ AP department with email or text reminders. Maybe your billing software has a feature that can automatically prompt your clients for you, but send it every week—before your customer is delinquent. You are counting on receiving those payments to meet your own business obligations, so stay on top of it.
6. Use incentives
When you do send your invoices, offer a discount to customers if they pay within 10 days, for example. Perhaps a discount of 1 or 2% is appropriate. Of course, this technique doesn’t matter if those money coffers are overflowing, but if you need cash, a small discount might be better than what you are paying in interest and fees for borrowing money to use as working capital. If you can get your money sooner and at a lower cost, an incentive discount is worth considering.
7. Ask for deposits or prepayment
Deposits and payments up front are excellent ways to cover your costs before you invest time and money in providing your service or product to others. Sometimes, large projects require heavy investments in labor or materials that you must pay. In those situations, it is reasonable to get some prepayment to cover some or all your costs up front.
However, from an accounting standpoint, deposits are a liability and have a real operational cost. When that happens, they may solve a short-term need, but you’re kicking the can down the road. Small business owners kick the can down the road every day, though, and it still might be a good option for you.
8. Build relationships
Develop good and communicative relationships with your customers as much as you can. Relationships support good interchange, including timely payments. AP departments usually have some leeway for when funds are released and are often willing to move you up the list when they know you are an independent, small business and appreciate you on a more personal level.
Cash is king
For a small business, there is nothing more important than cash. The sooner you have it, the better, so strategies that speed up the collection cycle are critical in maintaining your company’s ability to meet its own obligations.