My very first “job” after college was working for a large corporation in the Accounts Receivable department collecting payments from customers who were paying invoices sent by the company I worked for to the customer. Getting timely payment from customers is not a new problem but there are things you can do to reduce time and lots of frustration during the collection cycle. I have learned and applied these tips by both working for large companies and small start-ups.
- Improve your invoicing processes: This can be achieved in a number of ways; for example, if you use an accounting platform, you can create standard invoices, create brand recognition for your company and you can also send invoices directly to your customers through the accounting system. Want to know what my go to accounting system is? Click here
- Do your best to not back load your month with invoicing. This will create a lot of pressure to collect payment from customers towards the end of the month and leave a big question mark on your cash flow if your invoices are not collected on time
- Invoice as soon as you complete a job or when your services have been completed. Why? Depending on what method of accounting you’re using in your software (preferably the accrual method), you will be able to recognize revenue sooner. Also, customers are much more likely to pay when an invoice is received shortly after services are rendered than a week, 2 weeks, or even later (please don’t do this 😱).
- Offer payment discounts to your customers who pay within a certain time period.
- Standard payment terms depending on what industry you operate in range between 30-60 day net payment terms. What does this mean? If payment terms on an invoice are net 30 days, that means you will owe the balance due on the invoice within 30 days.
- Standard discounts on invoices will look like something similar to “2/10 net 30”. No that is not some wacky accounting formula or February 10th. 2/10 stands for a 2% discount applied if payment is received within 10 days of the date of the invoice. You can have 3/15 or whatever you see fit to incentivize your customers to pay sooner. If the customer doesn’t pay during the discount period, they are expected to pay net of the invoice balance within 30 days given the 2/10 net 30 example.
- Offer Subscriptions
- As the internet continues to become more mature, more and more businesses are turning to the subscription-based business model. This business model alone reduces 90% of the frustration of issuing invoices and collecting payment from customers. There are plenty of integrations such as Bill.com that will automate this process for you. You will only need to intervene if a customer hasn’t taken the action to update their credit card information. I listed this one last because if you are a services based business and not an online one, it might be difficult to implement this business model into your business. But it is a wonderful option for plenty of other businesses.
What do you do to incentivize your customers to pay quicker? Do you do something unique to your business that you can share? Let us know in the comments: