Filing business taxes can be not only a torturous process but also an eye-opening one. One issue that tax season — and those raised eyebrows from your accountant — might have brought to light? The pileup of outstanding receivables on your balance sheet. If you’re not getting paid as often as you would like, there’s good news (if you can call it that) — you’re not alone!
Each day, millions of small businesses are getting stiffed or are not paid on time. In fact, according to the National Federation of Independent Businesses, slow or late payments are the most significant issue businesses encounter when it comes to getting the money they’re rightfully owed.
So what to do? If you’re like most small business owners, dealing with late payments is not exactly your specialty. Yet, NET 30 doesn’t have to become “NET-when-I-feel-like-it” or “NET-Never.”
Here are a few simple and proven tips to speed up payment time and ensure you get paid for your work.
Before You Start, Get a Contract
Contracts often get lumped into that “I know it’s important and will get to it one day” pile. While it’s easy to want to jump into projects headfirst, getting a contract in place beforehand is a crucial legal step to ensuring you get paid. It’s also just good business sense.
A contract should have clear guidelines around the services you promise to perform as well as payment terms. Even just the basics like “we will do this” and then “you will do this” and getting that captured on paper can be better than nothing. It’s best to work with a local attorney who understands your business when creating such a contract. If you can’t afford that, the Freelancer’s Union Contract Creator is a great alternative, and can be adjusted to meet the needs of small businesses.
Show You Mean It
Without customers you’d be nowhere — but constantly letting late payments slide makes you look bad, is unprofessional and hurts you financially. When you do this, you are essentially providing no-interest financing to your customers. If that’s the business you want to be in, go for it.
I’m guessing that’s not the case — so you need to establish a process for following up on invoices, and as needed, reminding customers of the payment terms and the contract they signed with you.
Sooner Is Better Than Later
As anyone in the collections business will tell you, the more aggressive you are early on in the payment cycle, the more successful you will be at recovering some or all of your money.
Often what happens is you wait a few weeks, then get busy on other things, then feel stupid for not following up sooner and so wait a few more weeks, then “all of a sudden” it’s a bigger problem than you had planned. Don’t let this cycle even start. Focus on disciplined follow up, and start early in the cycle so you improve your chances of getting what you are owed.
If someone’s paying late, is there an internal issue causing this or is there a relationship problem that needs to be addressed? By having better insight into the “why’s” and establishing an open line of communication with accounts payable, the “how’s” of getting paid on time will become clearer.
Sometimes a delayed payment can highlight other business issues like outstanding deliverables on a project. Further, this can help uncover red flags to inform whether or not a customer is even cost-effective for you to keep on.
Take it Face to Face
At one of my first companies, we hired couriers to collect from late paying customers in-person so we could pay the bills. Crazy, but it worked. We recently heard a story about a large PR firm who would send the senior execs out in person, often flying around the country when a check was outstanding for too long.
When times are tough, you’re forced to get creative! Similarly, scheduling a drop-by meeting may be just enough to get that check and rekindle the flames of the relationship while there. It’s easy to write off someone’s email, letters, etc., but much harder to refuse to pay when that person’s standing in front of you.
Outsource the Process
There are tools like the one my company offers that provide a non-headache inducing, automated way to follow-up on late payments and send overdue accounts to collections. You can also ask your accountant for debt collections recommendations.
Regardless of your approach, remember that to make any accounts receivable program successful, it’s important to start work collecting on late invoices as soon as possible. If you have a 600-day outstanding invoice, the chances of your customer (or likely at that point, ex-customer) paying you are pretty slim.
What techniques do you use to get paid on time and deal with late payments? Ever done something crazy like sending couriers to go get the money for you? I would love to hear about your stories of getting what you’ve earned.