As a business owner, you always want your customers to pay faster. When people pay you on time, it provides you more immediate cash flow to invest right back into the business. A timely payment system also enables you to budget more effectively and set yourself up for growth and development. You can also create sustainable relationships with customers to incentivize them to pay on time.
Many, if not most small businesses struggle with long payment delays – offering payment terms between 30-90 days. But how do you create an environment where your customers pay faster? It all starts with meaningful communication with them and researching more efficient ways to process invoices. In this article, we explain some key strategies to get your customers to pay faster and increase their cash flow. Each of these strategies is useful in different situations, so evaluate the best one for your circumstances.
Establish Payment Terms and Expectations Early in the Relationship
If you want your customers to pay consistently, it is essential to be clear about the expectations immediately. You do not want to create any confusion or ambiguity, so lay out a clear plan for them and gain confirmation. The two key messages to communicate is how much the customer needs to pay and when they need to pay it by.
You can also set periodic reminders for your clients to keep them on track. They may have a lot of vendors and deadlines to remember, so it is always smart to create small ticklers that keep you in the front of their minds. When you send them reminders, it lets them know that you are thinking about them and helping them stay on track.
Incentivize Customers to Pay Early
People are motivated by incentives, and your customers could be influenced to pay earlier if you sweeten the deal. If you offer discounts for quicker payments, this could speed up the cash collection process. It can also establish long-term loyalty between you and the customer, laying the ground for consistent and early payments.
You could also provide these incentives in the form of your product or service. When your customers pay early, you can give them additional access or features for no additional charge. If there is an opportunity to send them free products, this could help incentivize early payments.
Build Rapport with Your Clients Right from the Beginning
Your customers are much more likely to pay faster if they know, like, and trust you. From the very beginning, you should establish a deep, personal connection with your clients. You may not be able to do this if you have many customers, but you should try your best to know their preferences, struggles, and successes to create meaningful relationships. This trust will motivate them to pay on time.
Avoid Charging Late Fees
Late fee charges are a double-edged sword that your business needs to take a stance on. While late fees will dissuade customers from paying late, they can also hurt your relationships in the long run. If your customers are always afraid of penalties, your connection will not be strong and will not create a lot of repeat customers for your business.
Move Toward Mobile or Online Invoicing
Many operations are moving online because it is more straightforward and much more effective. People enjoy the least resistance path, so your customers are much more likely to pay on time if it is done online. Online invoicing and payments streamline the process for your customers, and it eliminates a step in writing the check. You will also be able to keep track of your accounts receivable if it is all done digitally.
Commit to a Consistent Payment Schedule
Humans love predictability, and your customers will pay much more consistently on a set schedule. If they can expect your invoice on specific days of the month, they will get in a routine of paying you on time and the right amount. If you are not committed to a payment schedule, your customers will often lose track of the payment deadlines and assume you will be lenient with accepting payment.
Do Not Deliver the Final Work Until You Get Paid
This option is a much more drastic approach to getting paid on time, but it can also be useful. If you have an outstanding invoice and still have more work to do for the client, you can pause your services until you get paid. The relationship can get strained with this strategy, but it could be the nudge that your customer needs to get back on track.
