For Any Business, Billing Raises Two Big Issues: Cash Flow And Customer Relationships.
Strong cash flow management is vital for small businesses in particular. Without large cash reserves or easy access to credit, getting customers to pay on time can even be a matter of survival. And although larger businesses often have the resources to ride out slow payment, delays are still costly.
At the same time, businesses are built on customer relationships. Being aggressive in chasing payment does more harm than good if customers don’t want to work with you again. In one study of credit card companies by Value Penguin, billing disputes made up 18.6% of all customer complaints—by far the most common cause of disputes.
With those key points in mind, here’s some advice that can help keep cash flow solid while keeping customers happy.
Make payment terms clear at the beginning
Discussing payment can be awkward, but the earlier expectations are set, the more likely you are to get paid on time. Payment terms should set out when payment is due (and if payment is due in installments when those installments are due). Your terms should also be transparent about the consequences of not paying on time.
An incredible statistic from cloud accounting company Freshbooks: simply using “please” or “thank you” in an invoice increases payment rates by 5%.
All other things being equal, the faster you send an invoice, the faster you get paid.
More than that, however, failing to invoice promptly sets a tone for your customers and clients. If you’re not in a hurry to get paid, why should anyone be in a hurry to pay you?
Your invoices should include a specific date or time period for payment. Although “payment due upon receipt” means, “payment is due now,” the lack of a clear due date actually makes people less likely to pay.
Most people don’t associate billing with marketing. But invoicing is also an excellent time to have a conversation about value. Customers are more likely to pay if they can connect the payment with the value they received, or when a good experience is fresh in their minds. Use your bills to communicate to your customers what they’ve received (or will get) for their money.
Accommodate how your customers want to pay
While you should be clear about your payment terms, adjusting your billing procedures over time can help you retain clients. If you’re a B2C business, ask your customers how they’d prefer to receive and pay invoices. Would they prefer electronic billing? Would they rather pay by mobile?
The same goes for B2B businesses. In addition, those businesses need to understand the billing processes of their clients. Big clients can have very specific requirements, such as the inclusion of purchase order numbers. Those clients may require resubmission of invoices that don’t meet their needs, resulting in later payment and more work for you.
Discounts and penalties
Depending on your business and your customers, it’s worth considering a discount for prompt payment, or charging interest or a penalty for late payment, or both. Incentives can push your invoice to the top of the pile.
If you are intent to charge interest or some kind of penalty, however, you need to be very clear about it upfront. Surprising customers with unpleasant payment terms can damage the business relationship.
You might think that reminders to avoid late payment are intrusive. But reminders are appreciated by customers if they’re seen to offer value. Helping your customers avoid penalties, fees, or service interruptions, for example, offers value.
A report by Fiserv found that 77% of customers were more satisfied with a biller that sent reminders to help customers avoid fees or penalties.
Follow up—with a phone call if possible
When people know they haven’t paid you, chances are they’ll want to avoid you. Unfortunately, emails make that very easy. A phone call has a better chance of a response and makes it harder to say no.
There’s no need to be rude when following up for payment. Knowing you’re aware of the issue and will follow up until you’re paid, is a powerful incentive!
E-Complish can streamline billing processes, and provide convenient ways for your customers to pay on time and reduce late payments. Learn more about our comprehensive VirtualPay solution, or schedule a demo of any of our products.