As a small business owner, one of the things you rely on is a steady flow of cash.
You need it to pay bills, pay your employees, pay the electric bill … the list is endless.
Therefore, billing your clients in a timely manner and receiving their payments in an equally timely manner is the key to your business staying solent.
So, what do you do when those bills aren’t getting paid?
Everyone has moments of forgetfulness. We’ve all misplaced a bill at some point, right? But chronic non-payment can cause your business a myriad of problems, including being unable to make more of the products that your clients want.
Let’s examine different ways to address past due invoices and see how you can move the needle in your ledger.
Getting unpaid invoices paid
First, let’s give your customers the benefit of the doubt and assume that they aren’t wilfully not paying the invoice. Sending past-due letters is the first step to alerting your clients that they need to pay.
Typically, this type of letter will include a restatement of the payment terms (net 30 days, etc.), another copy of the invoice, the original invoice number, late payment penalties, and a self-addressed envelope to make it easy for them to return their payment.
Another way to help your clients pay on time is to set up online payment options. Not only is that more convenient for most customers, but it also decreases in lag time between receiving payment and seeing it reflected in your business’ account.
Even better, most programmes with online payment options include recurring payments.
This is an instance—one of many—where technology and automation are your new best friend. This takes the onus off of both you and the client to remember; instead, your accounting and invoicing system does it for you.
How to set-up recurring payments
The first thing you’ll need is an accounting system that can handle recurring payments. This means that your system must be set up to receive online payments via credit cards or bank accounts (Direct Entry). Square, QuickBooks, PayPal, and Stripe — just to name a few — are all equipped to handle this type of billing.
Second, you and the client will need to determine what type of payment will be needed. There are generally two types of recurring payments: fixed and variable.
Fixed recurring payments are used for static payment amounts: monthly fees like a subscription or membership services, or retainer fees.
Variable payments tend to be different month to month due to the nature of the service being billed. For example, government services or utility bills can be defined as variable payments. In general, these costs will be relatively similar, but there is a chance for fluctuations in the total charged amounts.
Once you’ve decided on the type of payment, you’ll need permission from your client to charge their card or bank account on a set schedule for a predetermined amount. The easiest way to do this is to get a credit authorization form filled out by your client.
As part of the pre-authorisation, there are a few rules to outline.
1. Make sure the client is aware of what will happen if their account has insufficient funds.
This is the equivalent of a bounced cheque. It may be that the first time this happens, you’ll give the client a little leniency. After that, a fee or percentage of the amount due will be charged. The client may also face a charge from their bank or credit card company, so they will work to avoid this.
2. Let the client know if they have the option to change their recurring payment date.
Similarly to making a credit card payment, it may benefit your client to change their due date at some point; perhaps due to their own cash flow. They may want to move their date from mid-month to the end of the month, for example.
3. If you’re going to allow clients to change their payment method on a selective basis, make sure those parameters are also stated upfront.
For example, one month, the client may need to change the debited payment from coming out of their business bank account to a card. If you’re willing to allow this, make sure that your online accounting system is capable of supporting this change.
4. Determine if you will allow the client to make ad hoc payments outside of the monthly fee.
In the case of variable payments, this is a way for the client to pay off the total amount more quickly. Additionally, you should make it clear that any additional payment that is made will be in addition to the recurring payment.
Paying separately throughout the month will not allow the client to “skip” their recurring monthly payment.
5. Lastly, confirm all of the information with the client.
This includes their banking or credit card info, and who to contact regarding any issues with billing. Also, be sure that the client receives a signed copy of all of the regulations they’ve agreed to.
How to make sure your recurring payment plan is successful
For the most part, setting up a recurring payment plan to combat past due invoices should go a long way toward solving your problems. However, there are a couple of things you can do to help the process along.
Send payment reminders
Especially within the first few months, be sure to send payment reminders via email or post to remind the client of the agreement, the amount that will be debited, and whom they can contact if they have questions.
Provide the client with an online portal to manage their payments.
If your accounting software supports it, give your clients access to their own account outlining all of the pertinent information. This should include a place to make ad hoc payments, view their overall balance, and change credit card or bank information.
Follow-up with your client on the terms and conditions.
Perhaps quarterly or yearly, it’s a good idea to check in with your client regarding this arrangement. Make sure they are still comfortable with it and ask if they have any questions or suggestions to make it better. Obviously, this type of dialogue will depend on the kind of relationship you have with your client.
Let clients know how the recurring payments are helping their bottom line.
If the client is ever hesitant about recurring payments or appears to be uncertain on being included, show them their “savings” from the payment programme. Typically, this is a listing of the late fees they have avoided paying by making payments on time. It can be an eye-opening amount.
The final word on past due invoices and recurring payments
You need to get paid.
Full sentence. Period. Stop.
Tackle past due invoices by working with your accounting software to set up recurring payments and ensure that your cash flow is steady, so your business continues to be a success.