3 Tips for Getting Customers to Pay Up

Your customer has the goods, and now they won't pay. What do you do?
Magazine Contributor
4 min read

This story appears in the October 2002 issue of Teen Startups. Subscribe »

(YoungBiz.com) - For your business to survive, you not only need customers, you need paying customers. So, what do you do when a customer already has the goods or services rendered, and the due date on that invoice you sent has come and gone? It's a tight rope to walk.

Your response can run the gamut from a friendly phone call or reminder letter to working out some sort of mutual agreement if it turns out your customer didn't just forget but is actually having trouble paying the bill. You could even choose to go all out and put a collection agency or attorney on the case.

Before you make a move, you need to decide what will be best for your business--both now and in the long run. "And what's best for your business is not upsetting the customer," says Justin Wilkinson, the 17-year-old owner of JAM Singers in DeWitt, Iowa, a company that breeds and sells canaries.

Of course, the best solution is setting up a sound accounts receivable structure and policy that will encourage your customers to get those payments in on time. When it comes to receivables, creativity can really pay off. Try these tips to help avoid delinquent accounts.

  • Tip #1: Offer an incentive. One way to encourage customers to pay their bills on time is to offer them an incentive to do so. Such an incentive usually takes the form of a trade discount; you may have heard of something similar to "2/10 Net 30." That means if your customers pay bills within 10 days, you'll give them a 2 percent discount off the invoice price; otherwise, the full bill is due within 30 days. Creating an incentive to pay early not only brings quicker cash, but it also improves your chances of getting the money in the first place.

    Wilkinson minimized the problem in his company by encouraging full payment upon delivery of product. However, because some types of services and sales are traditionally paid on credit, you must be creative and develop incentives to pay early--cash or otherwise--that fit your business and are appealing to your clients.

  • Tip #2: Send reminders. Sending friendly reminders not only improves your chances of getting paid on time but also preserves your healthy business relationship with that customer. Reminders can be anything from a friendly postcard reminding the client of the payment deadline to a simple, pleasant phone call.

    Take care to promote a "friendly persistence" without being obnoxious. You want to be polite, flexible and understanding, but you don't want to develop the reputation of being overly casual when it comes to bill collecting.

  • Tip #3: Encourage prepayments. The only real way to ensure your clients pay up--and on time--is to collect the money at the time of service or sale of goods. You could even go one step further and suggest prepayment. In some professions, such as law, it's common to have a prepaid account in which money is taken out as services are rendered or products are ordered. If you have clients you do a lot of business with, encourage them to set up accounts with you to make things easier--or, even better, set up a direct withdrawal system.

    Of course, your customers won't be interested in such a plan simply because it's good for you and your business; you'll have to show them why it's in their best interest. If the system you set up is safe and hassle free--one that saves them from having to sit down and write you a check every month--that might be enough of a selling point.

The good news is you'll probably find that most of your customers pay their bills on time. Still, there will be a few along the way that procrastinate or truly have difficulty paying. Take the time now to set up an accounts receivable structure that fits your biz, and you'll find that both you and your customers will be sleeping better at night.

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