How to Get Paid Faster
One of the pitfalls of being in business for yourself is having to deal with your customers’ overdue accounts. You’re a contractor not a collector, and you have better things to be getting on with than chasing down late payments. For small contractors especially, a couple of accounts in arrears can spell disaster for their business. Getting paid shouldn’t be a struggle, so here, we offer 11 great tips for how to get paid on time.
11 Tips to Get Paid on Time
1. Run a credit check.
Before you agree to extend terms to a customer, run a credit check. A potential customer with a poor credit score is likely to be a bad risk, and you would be wise to require payment up front, in part or in full, depending on the credit history.
2. Stay on top of accounting.
Proactively managing your books keeps you on top of overdue accounts so they don’t slip through the cracks without action. Hiring a bookkeeper can make a huge difference in getting paid on time, since that person will be dedicated to keeping track of what’s been paid and what hasn’t and sending notices or making phone calls on overdue accounts. Staying on top of accounting also means making sure you have the right billing and contact information for the customer.
3. Give your customers plenty of payment options.
If you make it easy for your customers to pay, they may be more likely to pay you on time, so offering plenty of payment options is a good idea. For B2B customers, EFT and ACH are often more convenient than cutting a check. Residential customers may be more likely to pay on time if they can use a credit card, e-transfer the funds to your account, or even use Paypal to send you the money.
4. Institute shorter payment terms.
A Xero study found that over one-third of customers pay their creditors at least two weeks late. By shortening the payment terms by two weeks, you may improve your chances of getting paid on time. Some larger jobs may require longer payment terms, but if the customer happens to ask for a discount, consider offering it to them in exchange for faster payment.
5. Develop and stand by credit policies.
Having concrete policies in place for extending credit to customers–and putting these in the contract–will help you get paid on time. According to The Atradius Group, 81.5 percent of surveyed companies didn’t have any credit policies in place. Policies may include charging late fees and accumulating interest for overdue amounts or asking for a portion of the payment up front in cash.
6. Offer an early-payment discount.
Early payment discounts reward customers who pay their invoice in full before the term is up. Although you lose a little profit–but not much–you’re incentivizing early payment, and many customers will take the bait, leaving fewer unpaid or late invoices on your books. A discount of 2 percent, or $200 for a $10,000 bill, is a small price to pay for prompt, in-full payment.
7. Invoice promptly.
Send invoices right away once a job is complete. Make sure the invoice is clear, easy to read, and includes as much information as possible so the customer understands exactly what they’re being charged for, how much they owe, and when it’s due. Highlight the payment terms and due date on the invoice. Add a handwritten thank-you note to personalize the invoice, which may make it more likely that you’ll get paid on time. Follow up on overdue accounts as soon as they lapse.
8. Use a factoring company.
When you can’t afford to wait for a customer to pay an outstanding invoice, accounts receivable factoring is a good option. A factoring company buys your invoices at a slight discount and takes over the waiting period, giving you cash in hand right away.
9. Request a deposit.
Customers with bad aren’t the only ones you should require a deposit from. You should almost always ask for a deposit on particularly large jobs and custom jobs, and it’s a good idea to get a deposit from new customers with limited credit or old customers with a history of paying late.
10. Go paperless.
Paper invoices are a pain to print and mail, and they can get lost in the customer’s shuffle. Going paperless with cloud-based software makes it easy to set up automatic billing, send invoices, and create automated payment reminders.
11. Head off trouble.
If a customer who always pays on time suddenly begins paying late or missing payments, contacting the customer can help you head off trouble before the situation becomes dire. If the customer has experienced a financial setback, rewriting the terms of payment can relieve some financial stress for the customer while ensuring you’re still getting paid.
By engaging in these sound credit management practices, you can improve the time it takes to get paid and reduce the time you spend trying to collect. Staying on top of invoices and actively going after past-due accounts will help you get paid faster and better manage your bottom line.