Are you frustrated by customers who don’t pay your small business by the due dates? Could you do better at any of these tried and tested techniques for getting paid on time?
1. TERMS & CONDITIONS (T&Cs)
Invest in really well written terms and conditions and have all customers (depending on your industry) sign and date them. There are a lot of really great apps that allow you to send T&Cs electronically for signing. The customer is given the option to sign digitally on their smart phone, tablet or laptop or waiting until they get home to print, sign, scan and email them back. Which option would you choose?
Some businesses who provide quotes put a line in their quotes that says “By accepting this quote and paying the deposit, you agree to the attached terms and conditions”, in place of customer signatures. Be sure to consider the pros and cons of this method. It’s not unusual for some customers to apply payment delay tactics. A non-signature method means a customer may try to argue that they didn’t see the statement referring to terms. If they actually signed the terms (either physically or electronically), it will be much more difficult for them to delay payment.
2. COMMUNICATION
Communication multiplied by 10! It all has to do with not taking your customer by surprise. For example, if your T&Cs have a clause that unexpected works will incur an additional charge, let the client know that additional work may be required as soon as you even suspect that it might be needed. If the extra work doesn’t need to be completed in the end, your customer will be happy. However, if you didn’t communicate the extra charges well, good luck getting paid and dealing with the negative feedback that may follow. If you sell products, is the product described in a way that customers know exactly what they are getting? Maple learned this lesson the hard way. To improve communication, our terms and conditions now list both the benefits that customers will receive by engaging us, as well as those that will not be provided. We also communicate this verbally.
Whenever you have discussions with customers about work that is outside your terms, follow the conversation with a quick email. It can say something like “This email follows from our phone conversation today and is provided to you for your records….”. Then summarise the conversation and estimated additional charges. Thanks to smart phones, this can be done as soon as you’ve hung up from the call. If the terms listed in the email are not what they had in mind, the customer can let you know.
Strong communication means that you are much more likely to receive full and prompt payment.
3. IMMEDIATE INVOICING
Statistics prove that the earlier a person receives a bill after receiving the product or service, the higher the probably they will pay. Wherever possible, send the sales invoice no later than the day the product is delivered or the work is completed. For example, if you perform work at your customers location, why not prepare the invoice before leaving their driveway? If you use a customer friendly Pay Now app, you may receive payment before you get to the end of the street. Done and dusted!
4. CREATE VALUABLE INVOICES
When preparing sales invoices, show your customers the value they are receiving by listing the details of their purchase. This is best explained with an example.
Imagine having your hot water system repaired by a plumber. A job that took the plumber and apprentice a little over an hour to perform.
Invoice Scenario A
Now imagine that the invoice says “Hot water system repair $990” and little else. How would you feel about paying it?
Invoice Scenario B
Now imagine that the body of the invoice was set out like the table below.
Which of the two would you be happy to pay promptly?
5. MAKE PAYMENT EASY WITH PAY NOW APPS
Consider using a Pay Now app which allows customers to pay immediately using their smart phone. Maple started by using Stripe and now uses Payrix. There are many others to choose from.
Apps can make the once painful chore of paying invoices so quick and easy that customers can do it while waiting for their takeaway coffee order. Although bank deposit or BPay options should definitely still be offered as payment methods, customers often appreciate the ability to get payment administration over with. The apps allow them to get the payment off their mind and continue with their busy day. No need for them to sit down in front of their computer after dinner or after the kids are settled in bed.
Pay Now apps will charge a surcharge. Although each app is different, surcharges are usually a percentage of the purchase price. Some charge no surcharge for bank deposits and Bpay payments, but do charge for payments made by credit card. Surcharges are usually 1.5-2% of the payment amount and are often higher for payments made with Amex. You will need to decide which is more beneficial, paying the surcharges yourself or passing them on to customers. Many businesses find that the speed of receiving payments quickly is worth the extra cost. In fact, once you’ve been using a Pay Now app for a while, you will be able to calculate your average surcharge per period and then pass all or a portion on to customers in the form of slightly higher prices. Remember that, if you pass the surcharges on directly with each payment, make it crystal clear to customers exactly how much extra they will be charged if they pay by credit card. Customers with a sour taste in their mouths are definitely not good for business.
6. REMEMBER THAT YOUR BUSINESS IS NOT A CHARITY
When a customer is late to pay, there is no need to be unreasonable. We’re all human and often crazy busy. However, have a clear system in place where customers are given no more than two or three warnings in short succession before sending the receivable to a debt collector.
Although each situation is different, a general rule is to send an electronic reminder no more than 7 days after the due date. The sooner the better. If you don’t hear from them within 2-3 days, give them a call. Hopefully your T&Cs have a section on payment terms and referrals to debt collection. Refer to these in writing, if the phone call doesn’t lead to payment. Use your judgement, but there is no reason to feel guilty about referring the debt on. Which is worse, a little awkwardness or not getting paid? No dilly-dallying!
7. LOCK IN A DATE
When you call to discuss an overdue invoice, ask by what date the invoice will be paid. This makes the payer far more accountable then them saying “I’ll pay soon” or “I’ll pay next week”. After they’ve given you a date, tell them “Great, I’ll add a note in my calendar for the day after that”. If we don’t see the funds in our account, I’ll give you another call”.
You will be amazed by how effective this simple little technique is.
8. IMPROVE YOUR CUSTOMER JOURNEY – HMMMM?
Have you ever thought about your customer journey? How easy and pleasant is your customers experience from the time they first need your product or services all the way to receiving what they ordered and have paid for it? The journey may even extend beyond this point. Does your customer journey resemble a fully catered 5 star guided tour around the world? Or is it more like trip taken by a poor backpacker with no particular plan in place and lot’s of DIY and hiccups along the way? Would your customers describe their journey with your business as a carefree and pleasurable experience? If not, what can you do to improve it?
Think about your customer journey and how it can be improved. Do your customers receive clear and regular communication from your business? Is the communication prompt? When they call or email, does your business get back to them immediately? Why did they call or email? Is your communication preventative or reparative? Is what they received exactly what they had in mind? Have you asked them? Do you provide service with a smile?
The further a customer journey is away from a fully catered 5 star trip, the less likely that customers will pay in full and on time.
How did you score on each of the 8 techniques? Are you strong in some and weak in others? If you need help with any, please give us a call on the number below.
Did you find this article helpful? Do you have anything to add? Is there a particular topic that you would like Maple to write a future article about?
If yes, please contact us by email (tara@maplebooks.com.au) or phone (0404 715 312).
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