For many small businesses, getting paid on time in this economy is a major challenge -- and getting paid early seems almost impossible.
Payment cycles are being drawn out as customers are paying later, creating a cash crunch for many business owners.
Your business' ability to encourage prompter payment can help alleviate cash flow problems and reduce outstanding accounts receivable, say experts.
"A small-business owner should be proactive in offering incentives and initiatives to get their customers to pay them early," says Michelle Dunn, a Plymouth, N.H.-based collections expert and author of "The Guide To Getting Paid" (Wiley; $24.95). "If you give your customer an inch, they'll take a mile."
Here are some ways to encourage faster payment:
Change your terms: If your payments are due in 60 days, change that to 45 or 30 days, says Dunn. Don't just drop it on your customers, but send out a letter stating the new policy and give them a heads up (i.e., it's not going into effect for two months), she notes.
Be proactive: Ten days before your invoices come due, give a courtesy call to customers with the largest balances, she suggests. "Don't look at it as a debt collection call," she advises. Call to say hi and see if they got the invoice and if there's any discrepancies, problems, etc., says Dunn. "Just treat it as a customer service call."
Make a personal visit: This can be a great way to prompt payment, particularly from late payers, says Dunn. "It's a reminder that works great," she notes. You could tell them you were in the area and wanted to thank them for their business and say hello. It's harder to not pay someone you have a rapport with or can put a name and face to, she notes.
Offer incentives: You could offer an incentive for early payment like a discount, says Elliott Portman, a partner at Bohemia law firm Roe Taroff Taitz & Portman and chairman of the Creditor's Rights Law Committee of the Suffolk County Bar Association. Trisha and Tom Fricke of T. Fricke Landscaping Inc. in East Northport do this. If a customer pays their invoice by the 10th of the month, they're entered into a lottery and if their name is drawn, they get a $50 credit on their next invoice. "It definitely helps," says Trisha, who mails out a monthly newsletter to customers that mentions the lottery and the monthly winner. "It's a nice little incentive."
Offer alternative payment options: Don't just accept cash, says Portman. Offer other options like accepting credit cards, he notes. The associated processing fees can be worth paying to get your money promptly.
Be clear on terms and penalties: If you have a contract with a customer, clearly outline the terms and conditions under which you expect to do business with them, including penalties for late payment, says Portman.
Establish policy: Have a policy on when you expect to get paid and then implement it, suggests Janet Attard of BusinessKnowHow.com, a Centereach-based small business information website. This should include when to follow up with late payers, how, etc., she notes. Too often, businesses drop the ball on follow-up, she says.
Get partial payment: If applicable, try to get a down payment and set payment milestones before a job is finished. Typically a way of dividing it might be in thirds, says Attard, explaining you might get a third of the payment upfront, a third halfway through and a final third upon completion.
Invoice promptly: Don't wait until the end of the month, says Attard. "The faster your bills go out, the faster the money comes in," she notes.