As a small business owner, you wear many hats and must learn lots of new skills to keep your business afloat. You may not have had official training in accounting, inventory management, or sales, but your passion for what you do motivates you to develop the skills you need to get the job done.
However, there’s one particularly niche skillset that has challenged SMEs globally since the beginning of sales – collecting payments from slow-paying customers. With technology eliminating many of the other daily nuances that slow you down, why can’t we just wave a magic wand to speed up payments yet?
Technology and legislation are working to alleviate this challenge for SMEs, but Sage sanctioned research to take a deeper look at reasons why the problem exists. Our Domino effect: the impact of late payments’ report shows 34% of U.S. consumers say they have no particular reason for making payments late, which means the resolution could be to facilitate a change in your customers’ behavior (e.g., forgetfulness, procrastination) and their interaction with you. Perhaps the remedy to your late payment woes is in how you’re asking for payment.
Here are three ways a better communication strategy can help you get paid faster:
Control the conversation
Our research also shows that 32% of U.S. SMEs say the biggest barrier to chasing late payments is their fear of awkward conversations and straining relationships with their customers.
It seems the catalyst for this is mostly behavioral and can be overcome by understanding your customers’ rationale better and being prepared with talking points to help drive the conversation. A better understanding of what’s slowing them down will help you get them to take action. When it’s done the tactical way, it doesn’t have to be awkward.
In fact, our Sage Business Experts advise the earlier you begin mentioning the invoice, the better.
“Invoice your customers immediately. While making a sale is great, the faster you receive your payment, the sooner your cash reserves are replenished. And try emailing invoices and statements – that can save time and provide your customer with the opportunity to pay you a lot sooner,” said Alison Parsons of Albert Goodman.
Keep in touch
Every communication touchpoint you have with your customers is an opportunity for quality control and to manage their expectations, advises Sage Business Expert Sid Moore of Moore Accountancy.
“The main things are to ensure your invoice clearly states the payment terms (such as seven days or 30 days) and a due date of payment. And you should regularly chase your debtors so they will get used to knowing that they will be chased if they do not pay on time.”
Send regular updates during the job so the client gets accustomed to a communicative relationship with you. As Jenny Garrett of Reflexion Associates suggests, a friendly rapport goes a long way in this situation. “Make friends with those who are paying your invoices. Make sure they know you by name and that you’ve created a personal connection – it can move your invoice higher up the pile.”
Let your invoice do the asking
Aside from no reason at all, our research shows the top three reasons for late payments are the payment is pending (40%), they only pay off invoices during certain timeframes (20%) or they never received the invoice (17%).
The latest technology in accounting software complements these conversations, which makes it easier for small businesses to get paid faster. Conrad Ford of Funding Options says technology is the best counter for late payment excuses.
“If you make a mistake in your invoice, you’re giving a ready-made excuse to be paid late – particularly if your client is a large business. Recheck the information in each invoice before you send it and use proper invoicing tools such as online accounting software to ensure your invoice meets all requirements.”
Accounting software integrated with invoice payments also allows you to create, send, and track invoices from your mobile device. Each invoice has an embedded ‘pay now’ link for customers to pay directly from their invoice. You can confirm when they’ve received the invoice and when it’s been paid. And since the entire process is automated, errors and customer disputes are minimalized.
How do you manage late payments? Share with us in the comments below.
The Domino Effect: The impact of late payments
Get our global research report to uncover why customers pay late, the impact on businesses and what you can do to tackle the problem.