Running an independent business means many things. One of these is that you have to keep up with customer payments. Unfortunately, you have likely already experienced the problem of late payments.
As a small business owner, if you have to lose 5% of your expected revenue – the average amount that SMBs write off each year – your bottom line will suffer significantly. It makes sense to go after payments, but how do you balance that against keeping the majority of your customer base happy?
Today, we cover a few of the best ways to keep your customers content, even when you’re contacting them about the sensitive topic of late payment.
1. Accept Multiple Payment Methods
Offering multiple payment options will make it easier for your customers to pay in a timely fashion.
Shoppers today want convenience. That’s why you often see large companies, such as Walmart and Amazon, accepting a variety of payment methods.
It’s a good idea to use software that automates the invoicing and payment collection process and accepts a range of different payment options.
Ideally, your customers can pay with a variety of credit and debit cards, e-wallets, or payment gateways, such as PayPal. You might also consider using Venmo, Zelle, and other peer-to-peer payment platforms.
2. Send Reminders About Late Payments
Once payments reach late status, don’t be shy about sending reminders.
You can either do this manually, by composing a personalized email, or setting your invoicing system to do the grunt work for you.
If you choose to send emails on your own, Debt Recoveries Australia recommends using an email template that is concise and to the point. You decide how many emails you send before you send a final notice.
This should be a bit firmer and remind your customers that they stand to lose credit and service from you in the future.
3. Call to Collect Past-Due Invoices
Sometimes, a more personal touch is needed. This often means simply picking up the phone and calling customers who are overdue.
However, there are many different reasons that a customer might be late on a payment, such as if they did not receive the bill, forgot, or simply do not have the money to cover their expenses.
Depending on the situation, you may handle this type of phone call differently.
Ultimately, you’ll need to maintain a consistent, polite, and professional tone while reminding them that they are obligated to remit payment and may potentially face consequences for unpaid bills.
4. Eliminate Late Payments
The best way to collect payments is to collect them on time in the first place. Fortunately, there are several ways to encourage your customers to open up their wallets either at the point of service or before their due date.
360 Payments suggests first setting clear expectations. In other words, make sure your customers understand when their payments are due and what the consequences are if they fail to comply.
One way to do this is by providing well-organized and clear invoices or receipt templates to download that detail the payment terms and due dates.
Other ways to encourage on-time payments include:
Offering a discount
If you’ve ever purchased home or car insurance, you may have noticed that your insurance provider offers a discount for paying your total for the term in one payment.
This is because it’s cheaper to collect once than it is to collect 6 or 12 different times. Plus, it reduces the chances of unpaid balances going into collections.
It also helps to keep the budget in check, as one bulk payment eliminates the need to worry about individual bills.
Finally, a bulk or up-front payment makes it easier to keep track of who has been paid and who still needs payment.
Setting up automatic payments
Depending on the software you use to process your payments, your customers may have the option to set up recurring payments.
This is helpful in situations where you require a subscription to services or when your customers must pay a membership fee for access, such as if you own a fitness center.
Automatic payments are one of the best ways to ensure that no one misses an invoice. Other benefits of automatic payments include faster turnaround times, less paperwork, and no need to worry about late payments.
Creating payment plans for large purchases
Sometimes, it doesn’t make sense to pay for an item all at once. Think about vehicle financing, for example. Most people don’t have $30,000 or more just sitting around in the bank to pay for their car at the point of sale.
If possible, work with your customers, particularly when you are dealing with other businesses, to create a payment plan. This might include a large down payment and then monthly debits to their account that will whittle down their balance.
You can even charge a small monthly fee for processing their separate payments.
If you need some money to hold you over while your customers are making payments, you can secure funds with 7(a) loans. Remember that if your customers don’t pay you back, you can write this expense off as “bad debt.”
5. Get Help with Bookkeeping
If tracking payments becomes overwhelming and it’s taking too much time away from other tasks, consider hiring a bookkeeper to help out.
You can find these professionals through online job boards where you can vet candidates based on reviews and experience.
Bookkeeping services pricing generally costs between $11 and $25 per hour, but you can expect to pay more depending on a bookkeeper’s experience and skill set.
Dealing With Late Payments: Final thoughts
As a small business, you can’t afford late payments.
After all, you have your own vendors to pay and a family to feed. But, when you’re dealing with customers and money matters, things can get tricky quickly.
One of the most important things to remember is to stay professional in all of your correspondence. Even if this means following a script or offering payment plans, everything you do and say to your customers (yes, even the late-paying customers) can impact how others view your business.
When everyone has a positive experience, you are more likely to enjoy the success you deserve and to collect the money that you are owed.
When it comes to paying your employees, TimeForge can help. We’re not a payroll provider, but we do have amazing tools that can help you save time in your payroll workflow.