Meredith Wood, Funding Gates payments extraordinaire, agreed to share her expertise and knowledge on how to empower your clients to pay your invoices in full, and on time.
Nothing is worse when a customer doesn’t pay you (or, on that same note, doesn’t pay you on time). It’s easy to throw around bad names, calling them deadbeats, cheats, and so forth. And for those that are truly stiffing you, it very well might be the case. However, in most late payment situations, unfortunately, the customer is not the only one to blame. So much of how you prepare and run your receivables process will actually affect your overall recovery rate and days sales outstanding.
Here are the top 5 mistakes business owners make when it comes to their receivables management:
It’s so easy to take on every customer that walks through your door. After all, you’re in the business of making money and customers = $$. The thing to consider, though, is that if a customer stiffs you, you’re not only losing that potential profit, but the money you put into supplies, resources and time. Therefore, taking on any and everyone as a client is actually a business risk. It’s really important for you to vet any customer you are considering doing business with. Call their references, run a credit check, etc. Do whatever it takes to make you feel comfortable about the customer’s past payment history.
An extremely popular excuse, that is often validated, is when customers are late on payment because they never received the invoice. Now, some may be fibbing, but ultimately, you need to make sure you can guarantee that IS what they are doing. Many invoices can get sent to the wrong address, for example. You need to verify that you not only have their address correct, but that it is in fact their BILLING address. Making sure it reaches the right person is also important. Many times the person you are doing business with isn’t the person who will be paying the bills. You need to ensure the invoice is getting into the correct hands. Another important thing is to ask you customer upfront if there is anything specific they need on the invoice. A lot of time payments get slowed down because the customer is needing information that isn’t there (think, for example, a P.O. number). Ask and verify all of the details with your customer before you ever send the first invoice.
It’s all too hard when you get a bill to give it a look, set it to the side, tell yourself you’ll get to it later and then completely forget you ever received it. Admit it, you’ve even done that yourself. It’s a pretty normal business practice to remind customers of a late payment, but how about breaking the norm and thinking proactively? If it’s a week before a customer’s payment due date and you still haven’t received your money, send them a friendly reminder email that points out the upcoming due date. Your doing your customers a favor and saving yourself work down the road.
Many times business owners notice a payment is overdue, but choose to wait a bit to see if the customer ends up paying on their own. Conversations about delinquent accounts are never fun, but that’s no reason to not put them at the top of your priority list. In fact, the older a debt becomes, the harder it is to collect. Therefore, the day an invoice becomes late, you should immediately reach out the customer. Make sure they know that you are serious about getting paid. This follow-up also helps surface the more logical reasons they haven’t paid. Did they forget? Did the bill go to the wrong person? Are they waiting on a check from THEIR customer? These conversations are important because it helps clarify where your money is. Structured follow-up decreases DSO, and the last thing we all want is our cash flow tied up longer than it needs to be.
Unfortunately, when you have found yourself doing business with a total deadbeat and you feel you have done all you can, it can be tempting to just write off that debt and never think about it again. However, there are huge financial implications for writing off debt, so don’t take this step until you have truly exhausted all courses of action. Third party collection agencies and debt collection lawyers do take a cut out of your overall owed amount, but if they are successful in collecting, you will see more of your money than if you had written it off. Always explore these options before throwing in the towel.
Cash flow can make or break your business. Are you making any of these mistakes? If so, take a look at your receivables management and see how you can change your processes, ensuring you’re not preventing your own customers from paying you on time.
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