Want to know one of the biggest issues which many small businesses are dealing with right now? The answer may surprise you, as it’s something that’s rarely talked about. It’s like a shameful secret that lots of business owners are hiding away because they’re worried people will think they’re not running their business effectively.
The unspoken shame is OUTSTANDING INVOICES
Having done the work, you’ve not been paid, and it’s now starting to feel really uncomfortable. What should you do next?
Cashflow is most definitely king in your business, and no matter what your accounts are saying, if there’s no money sitting in the bank account then ‘outstanding invoices’ aren’t going to pay your bills.
Let me share with you 5 steps you can take to ensure you never end up in this uncomfortable position again.
Step 1: Pick the customers who pay on time
Easy to say, but not so easy to do, huh? It might not be as difficult as you think. Marketing gurus are always telling you to develop your ideal client profile to help you market more effectively. This can also help with your cashflow, in identifying those customers who are most likely to pay on time.
What are the signs you can look for in your potential customers to indicate they will pay on time, or not?
Grumbling about your prices is one key indicator. Customers who try to haggle with you and reduce your price are often the same ones who want more for their money, take up lots of time with their queries, and end up paying late.
Think about past customers who have been late payers – were there any signs that you could have picked up earlier?
Step 2 – Define your payment process
Do you have a clearly defined process that explains to your customers when they will be invoiced, how long they have to pay, how they can make payment, and what will happen if they don’t pay on time?
If not, you’re certainly not alone, but it really won’t take you long to do. Grab a piece of paper and a pen and write out how you want it to work, then simply have a way of communicating this to your customers when you commence any work. Include it in your contact upfront and bring their attention to it.
This is YOUR process so you get to decide how it works. There are no set rules here. I see lots of small businesses assuming 30 or 60 days are standard payment terms. In most cases I’d suggest this is far too long.
The sticking point can be if you are invoicing larger organisations who want you to work within their timescales for making payments.
Let’s be clear here – this is for their benefit, so they can hang on to your money longer and maintain their cashflow, and to fit into their process.
I would always recommend challenging this and not accepting that any organisation can only make payments more than 30 days after an invoice being issued.
Seriously, how easy is it to make a bank transfer online nowadays? They may not want to, as it’s outside of their process and a little more work for them, but they can do it.
If they choose not to, then you also have the choice to go ahead with the work on their payment terms or not.
Step 3 – Automate and systemise it
Once you’ve defined your process, then look at how you can automate as much of it as possible.
Even if you’re not, you can still set up standard templates to send as follow-up reminders.
In most cases, a simple email reminder is all that’s needed.
Step 4 – It’s your money, go ask for it
You’ve done the work, you’ve sent the invoice and then the reminders, but still no payment?
Pick up the phone and ask for it.
If you feel icky doing this, as the customer may do business with you again and you don’t want to upset them, then my question to you is, do you want to do business again with a customer who is difficult to get payment from? And, why should asking them to pay an outstanding invoice upset them?
Maybe you think it makes you look desperate in some way by asking for the money. Let me tell you, if you missed a mortgage payment with the bank or building society, they would soon be following up the outstanding payment with you. Do you think they are desperate for the money?
I’ll say it again, it’s your money, go ask for it.
Step 5 – Get payment upfront
This is the ultimate way to ensure you never have to deal with an outstanding invoice ever again, simply get payment upfront before commencing any work.
Sounds obvious? So why aren’t you doing it?
Maybe you think your customers won’t want to do this. Maybe you think it’s just not the way things are done.
Let me remind you – it’s your business and you get to decide how your payment terms operate.
Try it out and start asking for payment upfront.
If this feels too uncomfortable, try offering a discount for upfront payments. (Of course, you could always keep your prices the same and start charging more after the work’s been completed)
If you don’t ask, you’ll never get.
Your payment process is the most important process in your business. If you do not have a process to invoice and collect payments, then you will not have a business for long, regardless of how many customers you have!
What do you think – do you have a great process in place? I’d love to know in the comments below.
Photo credit: Deathtostockphotos.com