As a business owner, you have plenty of things to stress out about. Getting paid for the work you’ve already done shouldn’t be one of them. After all, humans have been trading goods and services for thousands of years. You don’t make the rules. You just follow them.
And yet, 80% of small business owners feel stressed about cash flow, according to the 2019 QuickBooks Cash Flow Survey. The same survey found that U.S. business owners averaged over $78,000 in outstanding receivables. That’s enough money to hire another employee, open another location, or buy a Porsche if that’s what you’re into.
More than half of business owners surveyed agree that not getting paid on time is their biggest cash flow pain point. And over a quarter say it takes 30 days or more to get paid, according to the 2020 QuickBooks State of Payments report. Another 71% admit they’ve struggled to pay suppliers due to dwindling cash flow, which negatively impacted their relationship with that supplier.
The solution to collecting invoices past due seems simple. If a customer’s payment is late, ask them to pay you. But asking for money can be hard. As humans, we tend to shy away from uncomfortable and confrontational situations like demanding payments. So if you’re a self-proclaimed peace-maker, feather-smoother, or otherwise avoider of confrontation, here are five tips to help you get what’s yours.
1. Change your mindsetIf you’re uncomfortable asking customers to pay you, chances are you’re worried about rubbing them the wrong way or damaging your relationship. After all, business is built on relationships. And one bad review can inflict a lot of damage. If you’re worried about creating a rift between you and your customers, it’s time to change your mindset. Keep these points in mind:
- You’ve earned this. You’re well within your right to ask for payment. You did the work, so you deserve to be paid. In fact, your business depends on it.
- Hindsight is 20-20. Until you communicate with your client, you can’t know why they haven’t paid the invoice. Avoid negative assumptions.
- You can be courageous and kind. A little kindness goes a long way. Keep your communication with your client polite, personal, and professional. They’re likely to respond in kind.
2. Pick up the phoneWhen it comes to collecting on invoices past due, a quick phone call could be all it takes to get paid. A phone call allows you to answer questions or address issues so that you can get to a solution faster. It eliminates those miscommunications (and missed communications) that are so common in today’s digital world. For all you know, those reminder emails you’ve been sending have gone straight to the junk folder—your customer none the wiser.
If you’re nervous about making the call, do yourself a favor and prepare a script. Keep it short and to the point, and then let your client speak. If you’re anxious, you might be tempted to ramble. You might say overly polite things like “It’s no problem” (even though it is) or downplay the urgency of your request.
Try to anticipate how your customer might react and prepare a few responses. They might apologize for missing their payment and send it over right away. They might have been confused by the invoice and need some clarification. Or they might not have the money right now and need to work out a payment plan. Think ahead about how you can respond to these scenarios so that you aren’t caught off guard.
3. Recruit some helpIf collecting invoices past due becomes too overwhelming, you can always delegate the task to a friendly and persistent member of your team. If that’s not an option, you can outsource receivables to an agency. They can track payments and contact customers periodically to collect payments on your behalf. This takes confrontation out of the interaction. After all, it’s just business.
Small teams and new businesses might also use automated invoicing tools. Most accounting and invoicing solutions allow you to send automated emails and reminders to customers when payments are due. If needed, use an invoice reminder email template to build your automated messages. Then let the software confront your client for you. An automated system takes you and your discomfort out of the equation.
As a last resort, and if your invoices are 90 days past due, you can bring in a collection agency to do the heavy lifting.
4. Clarify your payment termsThere are several reasons customers might not pay their invoices on time. They might not realize their payment is past due. Or they might still be looking for their rarely used checkbook. Whatever the reason, you can take a few steps to encourage customers to pay on time.
- Set a clear payment due date. Invoices commonly say things like “net 30” or “net 15,” but your customers might not know exactly what that means.
- Send detailed invoices. Clients may not pay if they don’t understand what they’re paying for. A detailed invoice, separated by line item, gives them all the information they need.
- Penalize late payments. No one wants to pay extra. Late fees can deter late payments.
- Reward early payments. Incentivize customers to pay early or on-time with a small discount for early payments.
- Require prepayment. Depending on your business, you can require customers to make all or part of their payment in advance. At the very least, consider collecting their credit card information upfront and asking for permission to collect payment automatically.
- Offer several payment options. If you only accept checks, you could be creating a roadblock to getting paid. Accepting more payment options like credit cards, bank transfers, or digital payments through PayPal, Apple Pay, or QuickBooks Payments removes unnecessary barriers.
By Myranda Mondry https://quickbooks.intuit.com/
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