Business success is about more than finding a new customer. A more complete picture looks at your cash flow - because being paid on time and in the right amount is a critical part of your overall business health.
Managing debtors is stressful no matter how many times you've had to deal with them, but doing so is important to your cash flow. That’s why you need the right processes in place to manage customer payments. If you don’t know what those are or how to get started, read our tips on effective debtor management for business success.
1: Outline your payment terms up front
Make it easy for customers to pay you. Your quotes and contracts should clearly state your payment terms. Be sure to your full payment details on your invoices and statements as well that way it's easier for them to pay.
Here's what you should be outlining:
• The amount owed and due date should be clearly displayed
• Provide your billing address and bank account details
• If possible, offer multiple payment methods such as credit card or online payment
• If you offer discounts to encourage prompt payment – or interest charges to discourage late payment – give the details
2: Send invoices and reminders immediately
Don’t lose your momentum. As soon as you’ve completed the work, or the customer has the product in hand, send your invoice.
Additionally, if you're not receiving payments when you should, it’s time for your follow-up system. Everyone will feel better if you send friendly reminders ahead of payments, as opposed to a rough demand when a payment is late.
You might not hear back or receive payment after the first reminder. However, it might be just a case of a missed email, so pick up the phone and chat. Sometimes that’s all it takes to get paid.
3: Proactively pick out struggling customers
Make sure you're watching out for signs that your customers are going through financial hardship. Sometimes, you can learn a lot about a company's financial position just from a little industry gossip.
Your next step is to get the customer to admit a payment problem. Then you can work together to get you paid. If they still aren't paying, it's best to halt supply until you have a new understanding (this is something you can lay out in your initial credit system).
If you do decide to restart services, discuss conditions for future payments.
While you may eventually consider a debt collector or court action, that’s the very last resort!
4: Late payment conditions
Don’t offer credit to everyone – you’re not a bank, and the banks wouldn’t either! Do background checks before you agree to anything.
Once approved, make sure you outline your credit conditions clearly. If you’ll charge interest on overdue amounts, your terms and conditions should say so (there may even be set legal requirements – it's best to check with your accountant or lawyer).
Then always stick to your conditions. If you offer a prompt payment discount, be strict with it. It shouldn’t apply if the payment is even a day late. If you bend this rule for a customer, make it clear that it’s a one-off because you value the relationship.
5: Stay top of mind
Finally, stay at the front of their thoughts! When payments are scheduled, you want to be first on the list to get paid. Become a priority by showing you will always make contact – repeatedly, if necessary – when payment is late. They’ll respect your boundaries and want to avoid the hassle of repeat contact, so they’ll pay you in good time.
If you value your overall business health, you must be serious about debtor management – and consistent.
State your payment terms up front and include the details on contracts, quotes and invoices. Don’t keep supplying someone who has no intention of paying and don’t offer credit indiscriminately!
Finally, stay top of mind, so that the customer thinks of you first, when they schedule payments. Follow the tips above and you’ll be well on your way to effective debtor management and business success.