Nothing is more frustrating to a small business owner than to work hard to provide a product or service in good faith, and then not to be paid for it. It feels like a betrayal, and in truth it is. You worked in good faith expecting to be paid. You would not have agreed to work for free.
Are late paying customers a problem?
A Fundbox 2017 study of small business owners estimated the cost of unpaid invoices across the United States at $825 billion. Unpaid invoices are a leading cause of business failures, or at very least a reason for slow business growth. If customers are not paying you, you may not be able to hire new employees, build inventory or buy equipment.
The study suggested that if paid on time, business owners could hire an additional 2.1 million employees, which would reduce unemployment in the United States by 27 percent. How’s that for a jobs program?
So what can small business owners do to get paid on time?
The most important thing to do is to make sure that you communicate your payment expectations to your customer beforehand. The best way to do this, of course is to execute a customer contract. You may not always be able to put a detailed contract together, but you can certainly send a quick email that confirms basic details of your price, when payment is due and so forth.
Another reason to confirm details in writing beforehand is to secure your right to add finance charges to late balances. The law requires that a customer agree to charges beforehand. Many business owners believe listing their finance charge on their invoice is sufficient. It is not. While your invoices should detail finance charges, they should do so as a reminder of your contractual arrangement.
The ability to add finance charges can deter customers who want to take their time paying you, so make sure to communicate how it will work, and have customer indicate their understanding and approval.
Prompt and accurate billing is also a must. The other day, a friend told me that she had to call her landscaper three months after he did her fall cleanup to ask him for a bill. Now, my friend is an honest person who wants to pay what she owes. Most people would simply figure the money is not important to you, and ignore the fact that they have not received a bill.
Make sure your bill is clear on due date of payment, and how payment can be made.
Make it easy for people to pay you. Earlier this week, my sister and I decided to chip in together to buy a wedding gift for our nephew. I bought the gift and texted my sister the amount due. A couple of minutes later – ch-ching! My sister sent me payment through Venmo. My sister would have paid me in any event, but because I made it easy for her to pay, I had the money in minutes.
Give people various options – online, in-person or through the mail. Use credit, debit, ACH, PayPal, and whatever will work.
If you are going to extend credit to a customer, take a deposit first. Customers with skin in the game are more likely to take payment of the balance more seriously.
Lastly, speak with your customers. Call them to make sure they received your invoice. If the invoice goes one day past due, follow up. Again, out of sight is out of mind. If your customer does not believe they need to pay you, they are less likely to do so. You can follow up with customers without being too heavy-handed. Use the call as an opportunity to make sure customer is happy with your work, and perhaps inquire if you can help them again in the future.