The ability to quickly collect payment is vital for every business, as you expect to be paid for your goods and services. But sometimes, your customers may be late with their payments or just not pay at all.
There are various strategies you can use to collect payments from customers in these situations. These methods will help you maintain your cash flow and prevent the need to hire a collection agency.
What are payment terms?
One essential part of collecting payment is to ensure that you have clear payment terms. Payment terms outline when and how you expect to be paid. They can also include information on any late fees and more.
Essentially, establishing these terms ensures that your clients know when they need to pay and how they will be able to do so. They also give you some legal footing when it comes to charging late fees or collecting overdue payments.
Why don’t customers pay?
There are plenty of potential reasons that a customer doesn’t meet your payment expectations. Each customer with late payments is likely overdue for a different combination of reasons. That being said, the following are potential explanations.
- You only accept payments while they are working.
- They don’t receive a mailed invoice.
- They lose the invoice.
- Your payment process is inconvenient.
- You don’t accept the payment method they want.
- They forget to send money.
- They didn’t read the due date.
- They have no incentive to do so on time (i.e., you don’t charge late fees or withhold deliverables).
- The invoice is for more than they expected.
- A financial issue came up, and they cannot afford payments.
- They don’t agree with the invoice or quality of services or products.
- You forgave a late invoice once, and now they expect you to do so again.
With that background in mind, the following tips outline how to collect payment from customers.
Tip 1 – Set expectations
Start by setting up clear expectations about your payment system, including the timing of the payments. This should all be in your payment terms.
Let the customer know when you will be requesting the payments, so they know when to look for the invoice. Make sure they also know when you expect to receive payment, which prevents a customer from claiming they didn’t know by when you needed to be paid.
Tip 2 – Decide when payment is due
As mentioned in the previous tip, decide when the payments are due and make it clear to the customer. Then, be consistent with this agreed-upon deadline.
Some companies expect payment in advance or at the time of the first service. Maybe you expect payment 15 or 30 days after sending the invoice. Perhaps you expect half of the payment in advance and the other half when the service is completed. Requiring payments for work upfront is an excellent strategy for reducing late invoices and getting paid faster.
You will need to decide what makes sense for your business and is fair to you and your customer.
Tip 3 – Send the payment notification in a convenient manner
One of the most important tips to help you collect payment from customers is to make it convenient for them to pay. For example, try text-to-pay and work to meet the customers’ preferences.
Text-to-pay is easily among the most convenient methods for your customers to pay. It can work with a full range of payment methods, such as credit cards, Google Pay, and Apple Pay.
You simply text your customers a link to your professional invoice with text-to-pay. They then pay with their phone. Because they click directly on the link you send, they won’t need to be concerned about online fraud.
You will also want to offer other convenient options for invoicing. For example, make sure that you can send invoices via email in addition to mailing them.
The invoices themselves should also appear professional and have clear instructions on them.
Traditionally, one convenient option for customers was to accept payment over the phone. While most customers today will prefer a method that doesn’t involve calling, such as text-to-pay, some will still prefer this method. That is particularly true for older generations of customers.
Tip 4 – Send the invoice promptly
The timing of when you send the invoice can have a significant impact on how promptly your customers pay and whether they pay at all.
This starts from the fact that sending the invoice earlier allows them to pay it earlier. After all, customers can’t pay invoices if you haven’t sent them.
More importantly, if you send the invoice promptly, your products or services will still be fresh in the client’s mind. In other words, they will remember that you delivered a product or service they owe money for.
If you wait too long, they may forget about receiving the product or service. Or they may think that they must have paid for it by then. Either of these situations could lead to them ignoring invoices.
Tip 5 – Accept the payment method they want
Another vital tip to get paid faster is to make sure you accept the payment method that your consumers want to use. The methods you can take will depend on your payment processing, but consider expanding if necessary.
We already mentioned credit cards, Apple Pay, and Google Pay. But think about what other methods they may want to use. You can even ask them in a survey. Some other popular options include ACH payment and eCheck payment.
Tip 6 – Follow up
After sending the initial invoice, be sure to follow up if your client does not promptly send money. In fact, you want to follow up with customers after they buy a product or receive a service anyway. Remember that following up with them will help you ensure that your customers are satisfied. That way, you know about any potential issues early enough to correct them.
Following up with your customer also helps you build a relationship with them, something any small business owner should strive for. That relationship could boost customer loyalty and potential referrals.
Of course, there is also the bonus that when you follow up with a customer, it reminds them of the recent service or purchase. That in itself can remind them to pay.
Tip 7 – Start by sending a reminder letter
In addition to a general follow-up asking for feedback, send your clients a reminder letter after the invoice.
Remember to send the first reminder early enough that they still have enough time to pay on time. This lets you prevent late payments and unpaid invoices. Keep things professional without being too pushy.
If they miss the payment due date, send another reminder letter that is still professional. You can even mention the payment terms they agreed to in the reminder letter after payment is overdue.
Tip 8 – Don’t threaten the client or get angry
No matter how angry you feel about clients not paying on time, do not threaten them or get angry. This will only make things worse. To start, depending on the threats you make and where you are, this could cause legal trouble.
Even if there are no legal consequences, getting angry with your clients or threatening them can significantly hurt your relationship with them. Simply put, they will be much less likely to hire you in the future or refer you.
Instead, stick to friendly payment reminders via your invoice system, as this is professional and increases the chances that your customer pays.
Tip 9 – But let them know you are serious
While you don’t want to threaten your clients, you should let them know you are serious. Remember that if you give a client an extension on their payment one time, they may come to expect that again in the future. They may also ask for an even larger extension in the future.
Simply put, not collecting payment on time from a client once can lead to a trend in future invoices.
To make your reminder about money owed seem friendlier, small business owners can include a note encouraging clients to contact them if they can’t afford the full invoice. Let clients know that you can accept a partial payment or a payment plan when necessary.
Tip 10 – Use collection agencies when necessary
In the worst-case scenario, you can always turn to collection agencies. They will collect the debt for you, but they charge for doing so. This will cut into your profits, which is why a collection agency should be your last resort.
Another last resort option would be legal action, where you take your client to small claims court. However, any legal action will come with legal fees that eat into your profits. Simply put, don’t expect your full payment with these methods.
Having your customers pay on time is essential to your business’s cash flow and overall profits. There are many reasons that they may miss a payment or be late. You can overcome most of these challenges with clear payment terms, offering convenient payment options, and sending reminders. For example, offering text-to-pay takes advantage of the high open rate of texts and that clients can pay in minutes.