10 Ways to Avoid the 'Elephant in the Room': Not Getting Paid
Where will your company be in five years? According to the U.S. Small Business Administration, approximately half of new businesses do not survive beyond five years, and many of those failures can be attributed to cash-flow issues. Cash flow, after all, is king, but for small business owners and entrepreneurs, talking to customers about money can be the two-ton elephant in the room.
Nevertheless, having those talks is essential, because, from the entrepreneur's side of things, a cash crunch can ruin a good thing. So, what should entrepreneurs do? Here are 10 simple operational techniques business owners can use to better manage their money, by taking back control of cash flow and getting paid on time.
1. Use a professional format for billing.
As a professional, you're likely aware that every piece of communication should reflect the credibility of your business. So, ditch paper and pen invoices -- yes, many business pros still use that method for payment -- and adopt a professional invoice-design format to imply a level of business acumen that your customers will respect. Customers are less likely to pay on time if you appear disorganized.
2. Use short, clear payment terms.
It may seem obvious, but before conducting work on behalf of a client, ensure that a signed contract is in place that clarifies payment terms in the proposal. Don’t leave room for confusion. Also, consider giving customers less time to pay for the agreed-upon services. Given 30 days to pay a bill, customers may wait until the very end of that period, even when their payment could have been processed within 14 days. Be reasonable with payment terms, but also remember that some customers will try to stretch it out for as long as possible.
For contract examples, Entrepreneur has a bank of business forms that may prove useful.
Related: 5 Tips to Get Clients to Pay on Time
3. Send invoices immediately.
Invoice for work immediately, while it’s still fresh in the customer’s mind. Invoice2go is a mobile app that lets small business owners invoice on the spot, right when the job is done. When they invoice immediately, business pros get paid an average of seven days faster. Better yet, sending the invoice while you're still with the customer allows you to run through the pricing and final bill together.
4. Digitize invoices and payment options.
Most modern companies prefer electronic formats. Sending electronically will prevent customers from having to scan an invoice in order to put it into accounts payable. Streamline this effort, and do your customer a service.
As relates to payment, many customers expect to have the option to pay electronically through solutions such as PayPal. This can be a win-win for the customer and business alike, as these options simplify the billing process and mean no more waiting for checks in the mail, which can take up an additional week, once they're cashed, to post to your account.
5. Itemize, for the sake of clarity.
Some customers won’t look at invoices until the last minute. Minimize the back and forth and mitigate customers’ accounting questions by sending invoices that are itemized, with each cost clearly explained.
6. Set email notifications.
Have an automated system in place that reminds customers who haven’t yet paid halfway through the payment term. For difficult clients, send a halfway reminder, as well as a follow-up note the day before the payment is due.
7. Use, don’t abuse, overdue fees.
This one is probably the most difficult suggestion to implement. No one likes being hit with an overdue fee, but contracts are contracts and customers need to understand you mean business. The threat of having to pay more can convince customers -- especially larger clients that are used to seeing this type of fee from other contractors -- that paying on time is important.
8. Reward early payments.
Consider just the reverse of the "overdue fee": Reward customers who pay on time. Implement a system that takes a set amount of percentage off the bill if the client pays within three days or less of receiving the invoice. When you do this, customers will better understand that payment options are reasonable, and in turn, will strive to pay on time.
9. Pick up the phone.
No matter how it’s written, an email that requests payment may have a tone that rubs the client the wrong way. Prevent this by picking up the phone and addressing the payment issue live. A short five-minute phone call may be just what is needed to get the client to move along.
10. Get expert advice.
Every small business owner is used to a hands-on approach when it comes to running a company, but if cash flow is of growing concern, take a cue from bigger players and speak with a financial advisor. An advisor can provide the skills, information and discipline required to get your company back on track.