How to Get Paid On Time

March 12, 2014 | 1,324 views

Get Paid On Time

Get Paid On Time

There’s nothing worse for a small business than a client dragging his feet in paying you. After all, you don’t have a flush bank account all the time that will cover the shortfall and help you pay your own bills. And while you don’t want to send up smoke signals and let your client know exactly how desperate you are to get his payment, there are strategies you can use to get him to pay you faster.

 

Have a System

The more organized you are in your billing, the easier it will be for clients to pay. If they know that you invoice on the first of each month, they’ll come to expect that bill. And make your payment terms clear. If you want the payment within 15 business days, make sure your invoice says so. If there are penalties for paying late (more on that in a moment), make that clear as well.

 

Reward Early Payments

There are two essential strategies to getting clients to pay you. This one, the reward strategy, tends to have better results because people like rewards and saving money. By building a policy that says you’ll discount any invoices paid early (say, within 5 days of receipt) by 5-10%, you give clients a reason to pay as promptly as possible.

 

You may want to play around with the speed that you reward early payments, as well as how much you discount the payment. Your profit margin can guide you with the latter, but you want the discount to be enough incentive to spur clients to pay early without biting into your bottom line.

 

Penalize Late Payments

If you’ve got a client or two that consistently pay 90 or more days after getting your invoice, it’s time to put your foot down. Create a policy that charges a late fee for any payments received after a cutoff date. Maybe that’s 30 days. It’s up to you. Again: the amount should be enough to get your clients to move. It shouldn’t be gargantuan, but the late fee should be enough to sting and make a client think twice about paying late again.

 

Be Clear and Consistent

For any changes you roll out regarding your accounts receivable system, give it time to stick and make sure you fully communicate far in advance of any changes you’re making. For example, if you plan to implement the late payment fee, announce the date this will be in effect three months from now. Then send reminders each month that the policy is coming soon. That way, when the date to enforce is here, your clients can’t play dumb and say they didn’t know about it.

 

And don’t waffle. The rules are right there, laid out for your clients. Don’t accept sob stories or flex the rules for some clients. Be willing to work out payment arrangements, but don’t let late-payers off the hook, or the whole effort will have been in vain.

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