Get People to Pay You Quickly
Make it easy for customers to pay your invoices, and you'll see your money sooner rather than later.
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To get your invoices paid in a more timely fashion, you mustavoid thinking rationally and logically, and instead thinkemotionally. (That sounds backwards from what you usually hear,doesn't it?) People often do things that don't make senseand aren't necessarily reasonable, and how they pay invoicesfalls into that camp. Among the several factors that affect howyour invoices will get paid are the amount of money involved, thefinancial health of the customer, the format of your invoice andyour relationship with the customer.
It pays to work to improve your relationships with yourcustomers--people pay more quickly if they know and like you. And,in general, you want to try to only take on customers who you knowhave the ability to pay. You are probably already working on thosefactors, but you may not have given much thought to an equallyimportant factor: the format of your invoices. You probably justsend whatever your accounting software spits out. Be careful aboutthis, because the easier you can make this process for yourcustomer, the more quickly you'll get paid.
I run a home-building business, and I've noticed a fewthings about how I tend to pay our invoices: If the amount issmall, that invoice will tend to be paid more quickly. For example,our biggest expense in a house is lumber. The invoices from thelumber company are all sizes, from just a few dollars to up to$20,000 or so, depending on what they bring to the job site andwhen. Sometimes I won't have enough money to pay for everythingat once, so I'll often pay many of the smaller invoices firstand leave the big one to the end. That may not be logical, but I doit.
One of the most crucial factors in whether you're paid ontime is whether your invoice is clear and easy to understand. Thereare a few vendors who send me invoices that are hard to read,don't have a consistent format, don't have the job numberon them, have unclear terms and so on. The harder an invoice is tounderstand, the longer I procrastinate on it. If I pick up aninvoice and see that I am going to have to call and get job numbersor try to figure out what it is actually for, I'll have atendency to put it down and pick up another one that is clear andcan be entered into the system easily. Before you say that thisisn't reasonable or isn't the way it ought to be, you areright! Unfortunately, however, it's just the way it is. Youcan't change that, but you can work it to your advantage.
It is also important to make your terms clear and easy tounderstand. Use your terms as a way to encourage payment. Be veryspecific about the due date, and state it clearly:
- Don't put "Pay by the 10th"; put "Pay byJuly 10, 2005."
- Don't put "2% 10, net 20"; put "Take $25 offif paid by July 10, 2005."
I once had an invoice for $110 that said in big red letters"take $20 off of this invoice if you pay by March 3,2005." Even though I could have waited several more weeks topay and could have paid other invoices that were due sooner, the 20bucks caused me to pay it right then.
There are many things that influence how quickly your invoicesget paid. Work all of them to maximize your payment rate andimprove your payment times. Find out if a customer likes a certainformat or wants certain information on the invoice. The more youmake your invoices fit in to your customers' accountingsystems, the more quickly and regularly they'll be paid.
Keith Lowe is an experienced entrepreneur who is a founderand investor in companies in several industries. Lowe also mentorsnew entrepreneurs; serves as past chairman of the board forBiztech, anonprofit high-tech business incubator; and is a co-founder andofficer for the Alabama Information Technology Association.