What small business owner hasn't worried about whether or not he or she would get paid at some point? Whether it's the number of customers that are running overdue accounts or the client who seems to be reluctant to pay for the job completed, not getting paid is one of the most frustrating aspects of running a small business - and, when not getting paid chokes off your small business's cash flow, one of the most dangerous, too. Here are seven ways to make sure you get paid for the goods and services you sell.
1. Don't extend credit automatically to new customers/clients.
Small businesses, just like large businesses, need to have credit policies in place that provide guidelines for determining which customers or clients will be extended credit and on what terms.
Doing Credit Checks Can Really Pay Off explains how to do customer credit checks in Canada. It may be your business's policy, for instance, to never accept personal cheques as payment, but only cash, debit and credit cards.
If you are considering extending credit beyond that point to individual clients or customers, you should have a procedure set up where the customer or client has to fill out a credit application and/or do a customer credit check. The fee for a credit report ranges from about $20 through over $1000, depending upon how detailed the credit report is, but it's definitely money well spent if it prevents you from not getting paid for that big job or big sale.
2. Take partial payment in advance.
Worried that you won't get paid for that sale or service? If it's sensible in terms of the price of the goods or services, ask for a deposit or retainer up front. This is an increasingly common business practice for higher-ticket items and services; no reasonable customer should be offended by such a request.
For instance, if you provide services, you might charge a percentage of the projected bill or a set amount as a retainer before you start work on a project with the remainder due on completion of the task. Or break the bill into thirds, asking for a third before work starts, a third halfway through the project and a third upon completion.
The beauty of partial payment is that it ensures that you get paid something even if the customer or client defaults on the rest of the bill.
3. Invoice promptly.
This seems like a no-brainer but I have personally dealt with businesses that haven't bothered to bill me for months on end for products or services rendered. Besides being annoying because I want to know exactly what the charges are, I can't help but wonder if the rest of their business practices are as slipshod. And with their own example, why should I be in any hurry to pay them?
Customer/client invoices should be prepared and presented immediately upon delivery of your goods or services to the customer or as soon as reasonably possible. Not doing so can make your business look indifferent to getting paid and slow down your cash flow for no reason. Waiting to prepare your invoices at the end of the month, for example, you may be adding as many as thirty extra days to your cash flow conversion period! Small business accounting software and POS (Point of Sale) systems make quick invoicing easy.
4. State payment terms visibly and clearly.
If you want to get paid promptly, don't leave it up to the customer or client to decide when your invoice should be paid. Rather than giving them invoices that say vague things such as "Payable upon receipt", make sure your invoices state specific payment terms, such as "Payable within 30 days" or "Due Date: ____________". See Use Invoices That Encourage Action for more on this.
5. Reward customers for paying promptly.
Waving a carrot at customers or clients, such as offering customers a discount for paying their invoices early, can help you get paid more quickly too. For instance, if your usual policy is to have payments due in 30 days, offer a small discount such as two percent to customers who pay within 14 days.
Read more about how to ensure that you get paid on the next page...