Getting paid by your customers

Ensuring that you're getting paid on time is an essential aspect of business. It helps you maintain a positive cash flow as well as a positive relationship with your customers. Just as your suppliers expect you to pay them on time, you in turn must require the same of your customers

Keep the following things in mind when you're managing the collection of your invoices.

Invoice immediately: It's vital to your cash flow to bill your customers as soon as you supply them with a product or service, as opposed to doing all of your invoicing at given intervals (on the last day of each month, for example). If you hold off on sending your invoices, you end up carrying your customers’ debt for longer periods of time.

Organize your collection system: Depending on the size of your business and the number of invoices you deal with, you might want to dedicate one or more people to handle collections and ensure that they keep clear and detailed notes on all interactions with your customers, including document receipts and electronic entries of sales.

Set up a pre-determined contact system: You want your customers to know that you take your billing seriously and that you handle it consistently. You also want to be prepared to deal with late payments when they arise, and make sure customers are aware of your policies and the consequences for late payment.

Once you have made two or three notifications and have still received no response in the form of payment, you may want to escalate things. Be sure to formally document your interactions with your non-paying customers. You may even decide to send notifications via certified mail. If an invoice ever exceeds 90 days past due, don't hesitate to ramp-up the pressure; the use of a collection agency or legal action may be your only means of getting paid.

Script it: Create a script for interactions you might have with non-paying customers. Pre-drafted letters and phone scripts for instances of past-due invoices and failure to make promised payments will enable you to be direct and consistent with your customers.

Reward early payment: One way for you to encourage timely payment of your invoices is to offer an early payment incentive. For example, customers who pay within 10 days receive 2% off the pre-tax invoice. To avoid a reduction in sales revenue, you may even choose to increase your prices by 2% before implementing the reward program. Likewise, you might consider charging late fees on past-due invoices. However, if you do so, be sure to mark this clearly on the invoice; your customer needs to know if there are penalties for late payment.

Consider invoicing in portions: For example, ask for half of the payment up front, and half upon delivery.

Know your customers: Try to keep an ongoing dialogue with your customers. Get to know them, the products and services they like, and, equally important, their spending habits and credit histories. Reviewing their accounts periodically allows you to stay on top of things and avoid potential problems. A properly managed customer relationship management system can be an effective way to handle your customer knowledge base.

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