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The best way to maintain a strong cash flow is to make sure that your customers pay their bills on time. The ideal situation would be to have your customers pay their bills ahead of the due date, but that does not always happen.
Too many business owners think that there is little they can do to make sure that their invoices get paid by their due dates. The truth is that there are around 23 things a business owner can do to motivate customers to pay their bills and maintain cash flow. The best part is that most of these 23 tips are actually very easy to do and easy to remember.
How to Get Paid On Time
Tip 1 – Promise only what you can deliver
Set realistic expectations regarding the quality and availability of your product. Few things create late invoice payments more than low-quality products and persistent back-orders. If a customer orders a back-ordered product, give an accurate shipping date. When a precise shipping date is unavailable, your best approach is to be honest with your customer and salvage that relationship.
Tip 2 – Make Detailed Price Quotations
Every aspect of the selling price should be clearly spelled out at the time of the transaction. The product cost, description, payment terms, shipping costs, and even estimated sales tax should all be presented to the client before the purchase is made.
If you spring surprise charges on a customer in the final invoice, then the customer will feel obliged to fight with you rather than pay you. To avoid that kind of profit distraction, just be sure to give the complete price before the customer agrees to make the purchase.
Tip 3 – Never deliver without a signed purchase order
A signed purchase order that clearly states the terms and conditions of the sale, along with penalties and fees for paying late, is your protection against late payments. Another great thing about a signed purchase order is that your customer will confirm the product and pricing. With a signed purchase order from your client that matches the transaction invoice, the customer can say little when it comes time to pay.
Tip 4 – Have clear and precise credit policies.
Never ship a product without having your client sign a credit agreement. It is just one more way of emphasizing the need for your customers to pay their bills on time. A good credit agreement outlines the payment terms, any interest on late payments, the payment address, and customer service contact information.
Pack your credit agreements with all the details your customers need, and constantly urge them to read the credit policies before signing them.
Tip 5 – Check out new customer creditworthiness
An essential part of establishing a credit agreement is a thorough credit check. Invest a couple of dollars in discovering everything you need to know to feel comfortable giving client terms. Look at the customer’s buying history and see what other companies have offered in the way of credit limits.
You can tell immediately if the customer is worthy of a credit account from your company and what payment terms to offer. It may be that this new customer you are considering always pays late, so you want to provide a smaller credit limit to get started. On the other hand, another new customer always places huge orders, but they pay within 30 to 45 days. In that case, a NET 45 term may be more appropriate to entice the customer to do business with your company.
Tip 6 – Establish reasonable credit limits
Never give a customer more credit limit than they can handle, but be sure to provide enough credit limit to sustain the business. Credit limits can be reviewed and altered as needed, but they should always protect your company from possible exposure to risk. Consider separate credit agreements for larger orders, which we will discuss later.
Tip 7 – Re-visit credit accounts at least once a year
Every year, you should review your credit accounts, run new credit checks, and decide whether to change credit limits or alter credit terms. This will allow you to reward good customers and remind slow-paying customers that, while you value their business, you are not here to offer long-term financing on short-term purchases.
Tip 8 – Not every client gets credit
Refrain from giving every client credit. In some cases, a pay-in-advance or a cash-on-delivery account is appropriate. This is usually the case with customers who habitually pay late, start-ups, and customers who have recently experienced financial hardships. Remember that your goal is to grow your business and reduce risk exposure. Denying specific customers’ credit is one way of significantly reducing your risk.
Tip 9 – Larger orders require different terms
It is acceptable to negotiate orders with customers that go beyond their credit limits. Just be sure that you protect yourself with a signed purchase order and sales agreement for those larger orders.
In some cases, a customer may share a purchase order they received from a very creditworthy client, but the terms are longer than the terms you have offered your client. In those situations, offering a special credit arrangement for that specific deal could be worth the risk and taking advantage of the chance to bring in more business.
Tip 10 – Resolve pricing disputes quickly and efficiently
Some customers will try to argue about pricing even when you have it in writing. Be decisive in your pricing negotiations and remind customers of the contracts they signed. That is why you have signed agreements in the first place.
Always stand firm in pricing negotiations, but also try to find out what has caused the customer to ask for a revised price. Sometimes, a pricing dispute carries an opportunity the customer may not realize. Ultimately, you should negotiate to protect your business and reduce any chance of losing money in the deal.
Tip 11 – Always deliver on time
If the product arrives at the client location late, your payment will also arrive at your accounting department late. Consistently deliver on time and make sure that every order is completely fulfilled.
A good advice is to discuss shipping methods with your customers before shipping products. It could be that your preferred delivery method is habitually late to your customer’s location. You can reduce the chances of late deliveries by getting details from your customers and making the proper adjustments.
Tip 12 – Document proof of delivery/acceptance
Investing a few more dollars in a delivery confirmation signature can go a long way to keeping your customers honest and getting your bills paid on time.
Tip 13 – Follow-up on delivery confirmation
Develop a system with your customers where you send out an email to confirm the information you received on your delivery confirmation report. Ask your customers to read over the confirmation information and alert you to any discrepancies.
Once again, some customers may not completely appreciate this gesture. But when protecting your cash flow, there is no such thing as too much information.
Tip 14 – Price invoices accurately
Invoicing errors on your part slow down payments from your customers. Make sure that each invoice is accurate, and always outline any special pricing agreements in the invoice.
For example, if you have offered a special bulk price on a particular item, always ensure that the bulk price shows up correctly on the invoice. Most customers will rightfully demand a revised invoice for such an error, and that will push your payment back even further.
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Tip 15 – Invoice promptly
Always make your invoice dating practices clear to each client. Some companies invoice when a product is shipped, while others invoice after the product has been received. Include your invoice dating policies in your credit application, and always invoice promptly for each delivery.
Tip 16 – Confirm invoice delivery
As a customer service, always reach out to customers and call them to confirm that they received their invoices. Some customers will appreciate this gesture, and some may not. But it removes one more excuse the customer has for making a late payment.
Tip 17 – Make payment terms evident
All of your invoices should have clear instructions on where customers need to mail payments and how to make the checks. Customers should not have to search the invoice to find payment options and a customer service phone number to call if they have any questions.
Tip 18 – Reward customers who do pay early
You would be surprised at how quickly you will receive payments from your customers when you offer a discount of two or three percent off the invoice for payments received early. You can provide a flat discount or put together a sliding scale with a more significant discount for earlier payments.
On the other hand, you should also punish customers who pay late. When you make your credit card payment late, the company always includes a late fee. Your company should do the same thing and clearly put information about the late fee on each invoice and in the credit application.
Tip 19 – Make it Easy to Process Payments
Always reference your customer’s purchase order information on every invoice. Not only does this protect you when discussing late payments with your client, but it does make their bookkeeping much easier. Most clients will insist that their purchase order numbers appear on your invoices because it is a good way for both sides to do business.
Tip 20 – Ensure customer satisfaction
Customer satisfaction calls can be made after each confirmation receipt is received or just as a weekly courtesy to your clients. When you make a regular habit of checking on customer satisfaction, then your customers will be prepared to tell you just how your company is performing. Take each suggestion very seriously and work hard to resolve any customer service.
Tip 21 – Offer convenient payment options
These days, electronic payments and Internet money transfers are becoming more and more common. If you want to keep your customers happy, you need to offer as many diverse payment options as possible. Electronic payment options are a great way to go, but you should talk to a company specializing in those payments to ensure you are setting up the correct type of services.
Tip 22 – Make courtesy calls close to invoices due date
If an invoice due date is a few days off, call your customer and remind them about your early payment discount. Some customers do not read the extra language on their invoices and may miss the early payment discount. As a courtesy to your clients, call before the invoice is due and remind them they can save money if they pay now.
Tip 23 – Be persistent with late accounts
Above all, you need to be persistent in maintaining your cash flow. Some companies make daily collection calls until an invoice is either paid or sold to collections. Constantly update your customers on how many days they have left to pay before the debt counts against their credit score, and do your best to bring in that payment.
A strong cash flow is the lifeblood of your business. You generate cash flow by creating invoiced sales and getting invoices to customers. But there is a lot you still need to do before the payment is logged into your books. Remain vigilant with your customers, make promises that you keep each and every time and develop good invoicing habits and most of your customers will respond in kind.
Here is a simple infographic summarizing these great tips. Enjoy!
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