Collecting payment for services rendered is one of the most important parts of running a small business. The process begins with setting expectations about payment terms to help avoid the need for numerous follow-up messages and phone calls to customers. By establishing payment conventions in line with industry standards and other similarly sized businesses, small-business owners will generate trusting relationships with customers, maximize their cash flow, and increase income potential.
Set Clear Terms for Customers
Many small-business owners are hesitant to discuss payment methods in the midst of preliminary meetings with potential clients. However, defining what portion of payment is expected at the time of service helps customers to budget appropriately and compare pricing with other potential service providers. Be sure to discuss acceptable forms of payment (cash, check, credit card, etc.), and always get the payment terms in writing (addressing them in the contract is a good idea) to avoid potential conflicts. Business owners may also want to post acceptable forms of payment on the company website or in marketing materials for quick and easy reference.
Take Cash Flow into Account
Payment terms can have a substantial impact on a company's cash flow. If a business agrees to wait 30 days after invoicing for payment, they will need to fund the customer's purchase until money is received. If cash flow is a concern, consider requesting a deposit for large products and services, or even asking for payment at the time of service. To set time frames for repayment, research similar companies prior to signing contracts or invoicing customers to understand payment expectations in the industry.
Reiterate Payment Information on Invoices
When designing a customer invoice template, include a company logo and a statement describing payment terms. Consider giving discounts to encourage timely payment. Every bill sent to a customer should include a service date, a description of services rendered, the amount due, and a due date. If credit cards are accepted for payment, the account information and expiration date request should be clearly spelled out on the invoice as well. A contact phone number or email address should also be provided, in case billing questions arise. Lastly, an invoice provides an opportunity to reiterate customer appreciation, so consider including a brief statement thanking them for their business.
When the Due Date Comes and Goes…
Your cash flow can be disrupted when a customer is late in paying an invoice, so it’s important to follow up a few days after the due date with a polite reminder. If the past-due period stretches to weeks, or if a customer becomes a repeat-offender, take the U.S. Small Business Administration’s advice and request a meeting to discuss the issue. As positive customer relationships and repeat orders are crucial to small businesses, last-resort efforts like small claims court and collections agencies should be just that — a last resort. When it comes to being alerted of past-due accounts, online accounting software can help small businesses implement consistent payment terms for their customers. Accounts Receivable reports run through an accounting program will identify customers with balances outstanding at any given point in time.