10 Do’s and Don’ts That Will Help You Get Paid Faster : Under30CEO 10 Do’s and Don’ts That Will Help You Get Paid Faster : Under30CEO
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10 Do’s and Don’ts That Will Help You Get Paid Faster

| September 22, 2012 | 0 Comments

Are you an entrepreneur that has decided (or must) offer credit to customers? Follow these do’s and don’ts to make sure you won’t wind up with a heap of delinquent accounts.

  • Don’t extend credit to all of your customers - Whatever you do, don’t assume because you offer net terms that they are for everyone. Only extend credit to customers that you have some point of reference that confirms they are financially healthy and practice good payment behavior.
  • Do vet your customers - If you are going to be picky about whom you offer net terms, be sure to vet all your customers. Have a credit application that all customers complete that gives you access to information you would need to check their credit report, bank references and most importantly, their trade references. Speaking to someone who they have done business with in the past is the best way to predict how they will pay you. If you have a customer that is a new business without much financial history, start on moderate terms with them and let them work their way towards more flexible terms, proving they are consistent payers.
  • Don’t assume they’ll stay good - Just because a customer was once in excellent financial shape doesn’t mean they will always stay that way. We’ve all heard way too many stories of bankruptcies, cash flow disruptions, etc. Always keep a close eye on customers whom you offered net terms, so you can watch for any unusual financial activity. Pull consistent credit reports and watch for such things as judgments, suits, liens or bankruptcies.
  • Do remind your customers - Help your customers remember when their due date is approaching. If it is a week before payment is due and you still haven’t received the money, send your customer a friendly reminder email. Make sure to keep it amiable, as they haven’t paid late yet! This helps keep customers from pushing your invoice to the bottom of a pile and totally losing note of the payment date.
  • Don’t just use checks - Get out of the Stone Age! If cash and check are the only way you accept payments, you are basically asking customers to pay you late. Find a way to accept online payments. ACH and credit cards should be a simple and easy option for customers to get their money to you. Not only does this literally help them pay you, but it cuts out anytime you would have to wait for the check in the mail.
  • Do incentivize - A little motivation never hurt anyone and you should keep this in mind with the customers you invoice. Establish a finance charge for late payments and even consider rewarding early payers with a discount. It will be worth it, considering the affect it could have on your payments. If you do decide to implement a finance charge, check your state’s usury laws to make sure you are not over charging.
  • Don’t Wait - The day a payment is late, act immediately. The longer you wait, the harder it is to get paid. Take immediate action.
  • Do utilize unique communication - Once a customer is late (and you reach out immediately) be strategic with your reminder letters.  If a customer is a chronic late payer, you are going to want to use more severe language. However, if this is a customer’s first offense, keep the language friendly. No matter what, it’s important to craft the language separately for each situation.
  • Don’t give up - If your late payments are beyond frustrating, the worst thing you can do is give up. Think of all that money you will lose. No matter how much you’ve lost hope, giving up is never worth losing what you are owed.
  • Do get help – When you are starting to lose hope, realize it is ok get help. In fact, there are many avenues you can turn to. If you have a seriously large delinquent account, look at calling a debt collection lawyer to take legal action. If you need cash fast, consider invoice factoring, which allows you to sell your invoices to factors, whom pay you a percentage of the invoice (usually 70-80%) and then pursue the payment themselves. And of course, there is always the option to use a collection agency. Most people hesitate towards this, given their bad rap, but if you do the work on your end, and ask the right questions when looking for an agency, you’ll be just fine. Just do your research, completely vet an agency and then turn over those pesky accounts to them so you can focus on the more important parts of running your business.

Meredith Wood is the Community Manager at Funding Gates, the first ever online credit department for small businesses. By automating the entire debt collection process, Funding Gates serves as the one-stop-shop for receivables management. Always looking for good talk on business finance, connect with Meredith on Twitter @FundingGates.

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Category: Startup Advice