How to combat slow-paying customers
Small business owners are feeling the aftereffects of the credit crunch in a way other than a slowdown in business: They're experiencing slow-paying customers.
Angie's List recently contacted its highly rated providers and asked them to share their experiences with slow-paying customers and how they handle those situations.
Of nearly 250 respondents, 60 percent said they are experiencing more problems recently with slow and even non-paying customers. About 10 percent of those businesses are dealing with this as a serious problem for the first time. Some report finding themselves squeezed between credit card companies that have tightened their lines of credit and customers who aren't paying promptly.
Companies whose customers are paying on time attribute their good fortune to three strategies:
- Upfront and constant communication
- Prepayment requirements, and/or
- Credit card back-up plans for those customers who don't pay on time.
Here are nine more tips to help ensure timely payment:
- Require payment at time of service: Be clear in your terms that payment is due immediately upon completion of a job. It might even be in your best interests to require at least some prepayment up front, or progress payment at completed phases of the project before continuing on to the next phase.
- Talk to your customer: Be upfront with your payment requirements so there are no surprises, and stay in constant communication with clients. Listen to your customers and answer their questions.
- Accept credit cards: Not all small businesses do, but requiring a customer to sign a credit card waiver can be an insurance policy for a business owner. Customers can choose to pay each invoice by card, or the card can be charged if their account becomes past due. If you currently do not accept credit cards and would like more information, visit Angie's List Merchant Services.
- Consider alternative payment options: Some businesses have begun offering short-term financing plans as another way to recoup payment from customer's who are unable to make full payment. A business owner can earn interest off the unpaid balance and it provides the customer a dignified way out of a potentially embarrassing situation.
- Be flexible: If you require payment at completion of service but your customer can't pay you until "Friday," offer to come back to pick up payment then. It takes time and costs money to make the extra trip, so be upfront about a charging travel charge to recoup that lost time and money. Most customers are likely to agree that's a reasonable request for the inconvenience and most will find you harder to turn away in person.
- Screen potential customers when they call: Most business owners who have been in their trade for a long time begin to get a feel for people who call in requesting service. If you're relying on your instincts and don't feel good about doing the job for a potential customer, it may be in your best interests to turn down the request.
- Offer upfront pricing: If applicable, agree to a set price for the work being performed in advance of the job so the customer is not surprised - and therefore less likely to pay - by an invoice.
- Get the customer's e-mail first: Many businesses are using e-mail as a more cost-effective means to invoice customers. E-mails are more likely to be read and noticed than an unopened paper bill.
- Don't take the law into your own hands: It can be time-consuming and cost you money, but when all else fails, it might be time to take your customer to court to recoup the money owed to your business. Be sure to keep copies of all your records related to the job and get things in writing in advance.