4 Ways to Collect Payment Faster from Your Customers
Experts in the field estimate that customers of small businesses across the United States owe approximately $825 billion in unpaid invoices. That is a lot of cash tied up in outstanding invoices. Furthermore, researchers say that a number of small businesses close up shop because they fail to manage their cash flow.
What can small businesses do to improve cash flow management? One reliable tactic is to collect payment faster from your customers.
The Invoicing Gap
Closing the invoicing gap, or the amount of time between invoicing your customers and receiving payment is an age-old struggle. Entire industries are based on solving this single problem in business.
Of course, that’s because this gap can determine if your business not only grows but merely survives. If you are not receiving prompt payments from your customers, your cash is inaccessible. Without liquidity, your business can not pay the bills, pay your employees, or move on to the next phase of your planned business growth.
So, how exactly do you close that gap? We have a few options that you should consider.
4 Ways to Collect Payment Faster from Your Customers
The faster you collect payments from your customers, the better. No one wants their money held up in limbo, and everyone wants to receive payment for their work in a timely manner.
A few of these suggestions may seem obvious and straightforward. And if you’re not doing them, you should get started immediately.
One of the easiest ways to get paid faster is to invoice more quickly. Don’t wait to invoice your customers for your work. If you base your current process on an arbitrary invoicing date on the calendar, don’t be afraid to change it. Processes can flex and be improved.
One of the best ways to improve the timeliness of invoicing is to go paperless. A cloud-based invoicing system is even better. This modern technology provides not only you, as the business owner, conveniences otherwise not realized with paper invoices, but also your customers receiving your notice for payment.
Even better, you can also automate this process if you have customers who pay the same amount of money each month for your services. This consistency removes any risk of not invoicing timely, and in turn, increases the likelihood of being paid sooner.
Offer Incentives for Early Payment
The next way to collect payment faster from your customers is to offer early payment incentives. It’s not uncommon for companies to include a penalty for late payments; in fact, it’s customary to do so.
Well, we know that people also respond well to positive reinforcement. So why not offer a reward to those who pay early?
Even a nominal discount on the amount owed can make payment to your company a higher priority than someone else’s. That small edge can be the deciding factor in if you receive an early payment or have to wait for your cash until the invoice due date.
Make It Easy to Pay You
This tip is a big one. The easier it is to pay you, the faster you’ll collect payment from your customers. Offer several electronic options so your customers can send their payment to you hassle-free.
Now, this doesn’t mean you should go to the expense and trouble of installing all kinds of bells and whistles to your website if you don’t have them already or forcing your customers to create an account with third party merchants just to pay their bills.
What it does mean is utilizing payment processors who allow customers to pay you without signing up for an account. Make sure all forms of payment are accepted, including debit and credit cards and even ACH. This flexibility can make a world of difference.
Sell Your Invoices
Last, but certainly not least, is the most immediate payment option available. You can sell your invoices.
“Do what?” you ask.
Yes, that’s right. You can actually sell your invoices using a service called invoice factoring.
By using a factor, you can receive your payment within days of issuing an invoice, rather than weeks (or months, in some cases). This quick turnaround can have a substantial, positive impact on your cash flow, especially if it’s customary for you to wait a full 30 days to receive payment on those outstanding invoices.
While all of the other options on this list offer an increased chance of faster payments, invoice factoring is a for sure thing.
Here’s how it works:
You provide the same exceptional services to your customers, as always. Then, you create the invoice for the work. Rather than sending the invoice to your customer, you send it to the invoice factoring company. The factor then advances the 80 to 90 percent of the payment to you immediately.
The customer pays the factor on the standard time table of the invoice. Upon receipt of their payment, the factor sends the remaining amount of the payment, minus any fees for the service.
You must seek out a factor that is transparent in their services and doesn’t have hidden or buried fees in the contract. There are also a few things you need to consider regarding services, like if they utilize recourse or non-recourse factoring or spot vs. whole ledger factoring. These options will impact how high the fees run and are very much dependent on your company’s needs.
There are many things you can do as a small business owner to collect faster payments from your customers, and there is no one-size-fits-all approach when it comes to these matters. In fact, your solution is likely a combination of several different methods.
As with most things entrepreneurs face, increasing your company’s cash flow is an exercise of trial and error. Test a few different strategies, watch the data, and adjust. If you don’t have the time available to do that, go for the more immediate approach, and get paid!