For most entrepreneurs, collecting overdue bills doesn’t come naturally. It can be awkward asking someone to pay their late invoice. It may even feel like you are imposing on a customer.
Unfortunately, collecting on overdue invoices is a very real part of any business that grants credit. But it should never be a major part of your activities, and bad debt should be a rare occurrence.
By following these 11 powerful tips, I’m hoping that your business can get customers to pay their bills by the due date—or even earlier. If you don’t know me well, this may seem a bit odd coming from someone whose profession it is to collect outstanding debt, but sound collection practices benefit the economy as a whole. My most important role, and what I love doing most is to educate and empower.
State your terms upfront
Have a contract with clearly defined terms, payment deadlines, overdue fees, etc. from the get-go. This helps ensure your customers fully understand what they’re entering into at the start of your relationship. Transparent billing terms outline your expectations about compensating you for your work. Have the customer agree to the penalties for late payments, or in most cases you cannot enforce them. If you operate in the construction industry the clarity and detail of your contract is especially important.
Require a deposit
In some situations customers won’t agree to pay for 100% of your products or services upfront, but it’s not unreasonable to negotiate a down payment prior to starting a job. After all, why should you as the vendor assume all the risk? If a project is large enough, break it up into defined milestones, with payment due after each phase is completed. Being firm on deposits is a great practice that will seldom cost you the job, and when it does there is a good chance you’ll have avoided a bad debt situation down the road.
Send your invoice as soon as the job is complete, product is delivered or a payment milestone is reached. This links the deliverable and fees together, which can lead to a quick payment.
Set up a retainer
With ongoing projects, having a retainer agreement where the customer knows what they’re paying every month means recurring billing so that payments are on time or early.
Provide a small discount for early payments
Who doesn’t like a discount? Offering your customers a small percentage off the total invoice amount for early payment may entice them to pay the invoice before the due date. It’s good for your cash flow, and sustaining a high payment priority is something for which you should always strive.
Leverage the cloud in billing
Automating your invoicing process can go a long way in saving time and money – for both you and your customers. Make sure your automated invoicing platform is cloud-based, includes payment reminders, has automation for recurrent billing and can link to online payment systems. This way, creating, editing and sending invoices can happen from your beach-side resort (I’m just sayin’), whether automatically or from a mobile app. Nearly all cloud-based services allow customers to pay online, making it much easier for them, and much more likely you’ll get your money on time.
Follow up with regular payment reminders
Send a gentle “payment is almost due” reminder a few days prior to the due date to help customers remember that the deadline is drawing near, and that you take it seriously. If your payment terms have come and gone, follow up with a phone call. Sure, a phone call at this point isn’t the most comfortable thing, but is much harder to ignore (or “accidentally” overlook) than eMail. Remember, you’ve made good on your end of the deal and it’s the customer who needs to own up.
Be flexible with your payment type
While some customers want to pay by cheque, credit card or online payment system, others prefer direct deposit via EFT. Expanding your payment options gives customers fewer reasons to delay payment and makes it easier for them. Now is a time with unprecedented payment options, from Interac eTransfers (which unlike credit cards cannot be charged back once received) to Apple Pay and even cryptocurrencies like Bitcoin. Educate yourself on the risks and benefits, but don’t be a dinosaur relying on payment by cheques. They’re admin-heavy, can bounce, and have a habit of getting lost in snail-mail.
Foster great customer relationships
Build strong relationships with your customers and let them know they’re valued. Solving a problem for them, or offering them an occasional bonus service or discount shows them that they’re not just another account number. A healthy relationship with each customer can help prevent, resolve, or smooth out payment issues. People pay suppliers they love first.
Renegotiate payment terms
I know – in tip #1 I said to set establish payment terms upfront. But do you really want to lose a good customer by being inflexible with those terms? Sometimes “life happens,” as they say. Good businesses can run into real problems. Be open to modified payment terms for a temporary period when it makes business sense. Listen to your gut, and be clear that it’s a one-time flex and not to become the new norm.
Your goal here is simply to understand what the problem is and proactively increase your chances of getting paid. Assess how valuable the customer is to you, how likely they are to recover from a current difficulty and become a reliable customer once again, and how much of the money owed you can reasonably hope to recoup.
Don’t release the goods prematurely
Sadly, this tactic is sometimes necessary, especially if your customer has failed to pay previous invoices on time. You might show your customer a photo or other proof of the completed product or deliverable. This establishes you’ve upheld your end of the bargain, and now you want them to do the same in order to protect yourself. This is especially important with any product that is custom, perishable or depreciates substantially after delivery. If you suspect a risk of not-sufficient-funds (NSF), insist on guaranteed funds such as a completed eTransfer, certified cheque or bank draft.
So, there you have it: 11 ways to get those bills paid when they are due—if not sooner. Remember, though, that not every approach will work for every business model, so I suggest trying different tactics to see which ones work the best, and adapting your methods based on what you learn. Be vigilant, continuously evolve, and never ignore your intuition.
When things go sideways, don’t hesitate. Send any overdue account to your collection agency at a fixed milestone, no longer than 90 days after the due date. By that point, the balance or risk has tipped, and the statistical likelihood of being paid is no longer in your favour.
Remember, the statute of limitations on debt collection in most Canadian provinces is a mere two years! Professional debt collectors are experienced negotiators, trained to work with customers to recover delinquent accounts immediately or implement an aggressive payment plan that works for all parties. We find this hands-off approach not only leads to successful debt recovery, but it also helps preserve a positive relationship between you and your customer, as the “bad-guy” spotlight is shifted to an impartial third party.
Looking for the right fit in a collection agency partner? Download my free guide using the link below, and be informed in your decision-making.