Have you been waiting on many of your clients’ checks for months after their due dates?
If so, you’re not alone: 26 percent of the 1,000 entrepreneurs who responded to the November 2011 Intuit Small Business Survey said that waiting for late customer payments was the most difficult aspect of being a small-business owner. Meanwhile, 25 percent said that they spend as much as three to five hours each week invoicing and chasing down overdue payments. And nearly 75 percent of small-business owners said that improving their cash flow would help their companies.
If you think that quicker payment collection would lead to improved growth for your own small business, try these five strategies:
- Send out regular automated statements. Set up an automated billing system that will notify your customers when their payments are due and follow up on a weekly basis until the invoice has been paid. This will keep your customers up to date, and the impersonal nature of the automated system should prevent your reminders from causing rifts in the business relationship.
- Contact the person who handles payments. If you’re working with anyone other than a sole proprietor, ask who handles accounts payable for the company. Send your invoices directly to that person to avoid needlessly waiting for payment simply because your contact forgot to forward your invoice to the proper person.
- Offer an early payment discount. Some vendors offer their customers payment terms that include a 10- or 15-day prompt payment discount period, in which they might reduce the total payment due by 1 or 2 percent. You’ll lose a little bit of income if clients take you up on your offer — but faster access to capital may be worth the expense, especially if you’d otherwise need to take out a loan to cover operating expenses.
- Charge late fees. When you contract with clients, include a section related to late fees, in which you state the interest percentage you plan to charge on overdue bills, capping the total amount to 10 percent interest per year. (In some states, this is the maximum interest rate permitted by law.) Talk with a business lawyer to draft a suitable contract.
- Collect electronic payments. Many customers are quicker to process payments electronically than cut a check. On the online Intuit PaymentNetwork, people typically receive payment within 10 days of sending invoices. This compares to an average of 27 days for collecting payment through all methods. Using this method, you can display a payment link or button on your invoice, website or email and enable your customer to settle bills immediately. You can have payments deposited directly into your bank account for only 50 cents a transaction, no matter the invoice amount. It’s a streamlined way to manage your own payment system, too: “When contractors submit invoices, I can pay them with a click of a button,” says Jennifer Bonfilio, president and CEO of Coast 2 Coast Captioning, who uses the Intuit PaymentNetwork to pay vendors. “It’s fast and easy. No paper, no printing, no checks.”
Check out this limited time offer – get $25 when you sign up and are approved to receive payments through Intuit PaymentNetwork.