Sadly for some businesses the heading “Encouraging Payment” without the luxury of "early" would also be of interest. In an ideal world you would win the business, deliver the service and be paid on time. Sadly this is not always the case.
The impact on your business of late and non-payment can be catastrophic. The following are 10 tips that will assist in reducing the average number of debtor day.
1. Communicate your terms and conditions: Terms and conditions outline the terms with which you conduct your business and provide protection for any claims against you. Before starting a new relationship ensure you have a terms and conditions document for the contract or sale. This could be a web page you can direct customers to (and ask they agree to the terms) or a more formal document they sign and return. The terms and conditions should include items regarding refunds, payment terms, limitations of liability, dispute resolution and definitions. It is advisable to use the services of a lawyer for this document.
2. Deal with reliable businesses: Requesting business references and checking them may assist in eliminating poor payers. Companies like Credit Watch can assist with providing credit reports on over 15 million Australian businesses.
3. Clarity at the outset: Your customer’s expectation as to what you are going to deliver, when, at what cost and how it will be paid for must be absolutely clear at the outset. Once the service has been provided confirm with the customer everything has been completed to their satisfaction and that the cost is as agreed.
4. Remove invoicing ambiguity: Your invoices should break down the costs and make it perfectly clear when payment is due and how it can be paid. Payment methods should be included along with BSB and account number details.
5. Make it easy to pay: EFT, BPay, credit card, PayPal or Australia Post Bill Pay all provide opportunities for your customer to pay. Some of these methods have a charge associated with them so select the methods that will most suit your customers.
6. Offer an incentive for prompt payment: Perhaps include a small discount for payment up-front or payment within 7 days. Keep in mind that the discount comes straight out of your profits so ensure you can afford to discount. This strategy works best for companies that have high profit margins.
7. Include a late fee: An early payment discount may motivate some debtors as will a late payment fee. Any late payment fee would need to be clearly defined on the invoice to ensure customers are aware of it.
8. Manage your invoices: Knowing when invoices are due and ensuring early payment discounts/late fees are applied requires an efficient bookkeeping system and timely follow-up. If you or your bookkeeper are unable to manage this process perhaps Alland Enterprises can assist.
8a. Timely follow-up: How soon after an invoice is past due should you be following up? Alland Enterprises would suggest never too soon! It is important to stay on the front foot and not let debtors dictate payment terms outside of what has been agreed. Even good customers may forget payments so an efficient follow-up routine is important. A follow-up routine may include timely reminders as to when payment due dates are coming up and contacting accounts that are past due.
9. Communicate with a decision maker: Once an invoice is past due it may be more effective to communicate with a client contact other than Accounts Payable. If you were thorough with point 3 “Clarity at the outset” you will know who to contact regarding payment. If your Account Receivable person or employees are reluctant to make contact higher up the corporate ladder this is where Alland Enterprises can assist.
10. Establish how and when payment will be made: Once a payment is past due you need absolute clarity on when it will be paid and how it will be paid. The how has two elements: where the client is expecting the funds from (as it would seem they haven’t been available to date), and by what method payment will be made.
And a bonust tip!
11. Be predictable: As soon as the initial payment is overdue, or immediately the late payment agreed to in point 10 is missed, contact your client.
Alland Enterprises assists clients with their debt recovery process. Whether it is to contact delinquent accounts or confirming payment terms with current clients, we work as part of your team.
Why not contact Alland Enterprises today to discuss how we can assist with this very important element of your business?