Getting paid on time

Cash flow is key to keeping any business afloat. According to a study by Jessie Hagen of US Bank, 82% of businesses that fail go under because of poor cash flow management.[1] Some customers might be holding off on payment so that they can keep liquid capital in their hands as long as possible . . . but others might simply consider paying your company’s invoice a low priority. If they don’t face a serious consequence for non-payment (for example, having their electricity shut off), how can you encourage your customers to pay their invoices on time?

One school of thought breaks motivations down into models of “the carrot” (a positive reward) and “the stick” (the desire to avoid a punishment). Here, “the stick” would be whatever few consequences a company is able to impose for late payment: cutting off services, levying additional fees, or even reporting someone’s delinquency to a credit agency. The bad news is that there are a limited number of these in any company’s arsenal.

The good news, however, is that there are a number of positive options you can employ to get those invoice payments rolling in on time.

Send Invoices Early

Due to a combination of “touchless” COVID-19 precautions and the economy’s overall digital evolution, 63.5% of firms are now shifting away from physical invoices.[2] Whether your invoices are paper or digital, our first recommendation is to send them out as early as you can. Getting the idea on the recipient’s radar early allows time to cement “Oh yeah, I need to pay that bill” in their mind.

When you send initial invoices out in a timely fashion, the earliness of that first reminder makes room for additional reminders to be spaced out later. A client might find it obnoxious if they have services rendered on the first of the month, receive no bill until the twentieth, and then get frantic-sounding back-to-back reminders two, three, and four days later.

Be Proactive With Reminders

Our second recommendation is that your payment reminders should be sent out proactively. Determine how soon after your service/sale the initial bill ought to be sent, and then plot out how many days later each follow-up reminder should go out. Having a clear policy, standardized format, and a step-by-step plan means you won’t have to continually be making judgement calls about whether it’s time to follow up again.

Many businesses may not have the needed procedures and resources in place for proactive follow-ups. This may be because they are relying too heavily on manual processes rather than software. It is not unusual for workplaces to put off updates to their systems, because change requires adaptation. But when you have an efficient follow-up system in place—especially an automated one—this frees up time and resources for activities that can help to grow the business.

One easy adjustment is to schedule automatic reminders ahead of time, populating them with the relevant information. Also be sure to customize your reminders: you can attach invoices, include payment links, and tailor your wording to match your relationship with the customers. You can also customize your wording to reflect how overdue the customer’s payment happens to be. For example, a message about an invoice that will be due in two weeks might sound a bit less urgent than for one that’s already two weeks past due.

That is one simple function to automate, but there are many more. It is clear that automation has many benefits. Firms that rely on manual processes to prioritize their collections take 30% longer to follow up than firms that use automated methods.[3]

Address Invoice Concerns Immediately

Miscommunications in business relationships can be awkward, but it won’t benefit anyone to let a disputed invoice (wrong amount, wrong item, et cetera) sit gathering dust. This is the sort of clerical error that shouldn’t take much time to fix, but merchants will sometimes delay the process. If a customer’s invoice has an error, address the mistake, issue a new invoice, and communicate with the customer about it as soon as possible. The sooner you work together to resolve the dispute, the sooner that amount of money will appear on your company’s balance sheet.

Provide Quick, Easy Payment Methods

Since there are few people who actually enjoy paying their bills, it’s best to be aware that there may be a certain level of resistance to the process. One way to minimize this natural resistance is to make bill payment as convenient as possible.

One obvious time saver is to provide credit card payment options. Because these payments are processed in real time, your customer finishes the task efficiently, and your company knows that funds are on the way. Setting your customers up with recurring or automatic payments would require even less effort from them.

Whatever forms of transaction you offer, take note that the payments industry is changing rapidly. A recent survey of 8,600 consumers found that 48% of respondents listed digital wallets as their preferred payment method.[4]

One option for providing customers a digital way to pay and save their information on file is to set up a customer payment portal, where clients will be able to log in online to settle their accounts 24/7.

Finally, consider the convenience of using payment links. This is when you provide each customer with a hyperlink via text or email, and they simply click that link to complete payment. According to a study done during the pandemic, 66.5% of companies surveyed are receiving more payments digitally.[5]

AR Improvements Pay Off

Don’t overlook possible updates to your Accounts Receivable processes! Whatever methods you implement to encourage on-time payments, AR system improvement is time well spent. Speeding up your cash flow might provide just the right resources needed to reach your company’s goals.