We have been here before. Economic downturns are not new, or, for this one, even that old. And while what we now face may be more severe, the reactions and behaviors of businesses feel all too familiar. One of the most insidious by-products of times like these, after the waves of belt tightening and budget/staff cutting, are the long and painful late payments. When business slows, payments to vendors get stretched. If this has not started happening to you yet, it soon will if you do not make it part of your focus to avoid it. Your clients/customers are under financial pressure. They are at their limits with their banks. Less money is coming in but the bills are still there to be paid. You could be in danger of becoming your clients’ bank. This is a big topic and is impacted by many areas of The Business Brickyard concepts (building relationships, saying no to clients, etc.). You can do everything else right but get this wrong and your business will grind to a halt. So, let’s focus on getting you paid faster. (As a primer, you may want to read this post “Pay Fast. Get Paid Faster.” from my book).
Let’s start with this truth: Sending your invoice and getting paid is as much a part of what you do as your product or service. And yet people pay almost no attention to the importance of invoicing and collecting payment. You work so hard to deliver your product or provide service(s) to your clients and in return for that you get paid. That last part is as much a part of the arrangement as any other. So why do your invoices go out late? (I cannot tell you how many times I have to request an invoice from a vendor) Why do they look so awful? Why do you make it hard for me to remember I got them? Why do you never follow up about payments until they are really old?
Let’s change that. Here are 5 ways to get paid faster:
1. Forget regular mail.
When you mail an invoice you lose control over it. You have no idea when it was received or if it was lost in a pile of papers somewhere. All bad. I don’t care if you send a PDF or a Word document, or use one of the many inexpensive online invoicing tools out there (Freshbooks or Blinksale are 2 online options that I know people are using and that will work well. Billings is a fantastic option for Mac users.), but send the invoice via email and ask your client/customer to confirm receipt. If you do not hear back in a day or two, follow up!
2. Make sure you understand their payment process.
Always remember that the payment process is as much about your client as it is about you. When we worked with GE, our invoices had to have 2 people sign off on them before being sent down to a national payment center in Florida. If a number was missing on the invoice it was sent back and had to start over. You need to make sure you know where your invoice is going from the point at which it leaves your office to when you receive the check. Do you need to have a PO# on it? Do you need to reference a quote number? Who do you call when payment is late? Often, if you do more of the work on the invoice then you can skip a few steps. Years ago I visited a client to whom we used to send 30-40 invoices a week. I saw a huge basket on a desk filled with our invoices. When I asked what they were all doing there my client said that when it fills up she sits down to log and pay them. I could see this wasn’t the most efficient process for her or for me. As a solution, my company programmed a summary invoice to look like the worksheet our client prepared by hand, then we delivered all of our invoices via FedEx once a week with the summary invoice on top. Our client paid the one summary invoice and we got paid 2-3 weeks faster than before.
3. Talk about the payment terms up front.
We get so excited about closing a sale or winning a client that we rarely if ever discuss the payment terms. If you try to take it on later you are already fighting a losing battle. If they have a corporate rule for payment in 30 or 60 days then you need to know that. You need to be able to explain to your client why payment on your terms is so important. Why it lets you deliver X,Y and Z of what they want from you. These tough times will push you to take on business regardless of the payment terms, but be warned that over time a client becomes less valuable if you are financing them. Years ago, we created a simple spreadsheet that showed how much we earned from each client in the past year, how much time they took to pay us and what that cost us using the current interest rate. Some of those spreadsheets were an eye opener to say the least. We had clients that were costing us 30% of our profit in interest. We brought the spreadsheets to our clients and had a fair and honest business conversation. It provoked discussions about why they paid slowly and we learned about things we could do that made our invoices easier to process. It never turned into a negative. Do you know how much each client costs you? Said a different way, do you know what your cash flow would be if every client paid you promptly?
4. Make the invoice an experience not a pain.
You work so hard to deliver a great experience to your customers – don’t you? Why stop when the product or service is delivered? How can you make the delivery of your invoice a memorable event to the recipient? It is a chance to ask for feedback. It is a chance to thank them for their business.
a) Make your invoice look great! Your invoice represents your company. Does it do it well? Have the designer that designed your logo, web site or brochure design your invoice. Make it clear and pleasant to read. Forms do not have to be ugly. Make it stand out from the others.
b) Add a message to the invoice that is memorable. Maybe it is a funny quote or a fun way to present the total due. If you don’t send many invoices then take the time to write a personal email with each one. If you send a ton, then this is impractical. But you can create a cover email that briefly thanks them for entrusting the work to you. Change your message every month or so. Even a variety of facts about your company or staff works well. Make it memorable and make it work with the personality of your business. I had one vendor who mentioned in their invoice when staff members had a birthday or had a baby, which drove home their family oriented nature.
5. Have a system to follow up.
So simple and so totally forgotten. What do most people do? At best, they send a statement of past due invoices in the mail. FAIL! If I am ignoring or stalling on paying your invoice do you think I will pay much attention to a statement? In the past I had many clients that would wait to pay until we called, but when we didn’t call fast enough we were essentially allowing that behavior to continue. Shame on us. It’s not a game until you let it become one.
When you agree that payment is due X days from receipt of the invoice (and now you will create that agreement clearly) then you call or email them X days +1. You made a deal with your client to perform for them and part of that deal is to get paid when agreed. As long as you kept your part of the deal you should – and must – insist they keep their par
t. If you want to deal with clients with integrity, then demand it of them and do not be shy about holding them to their word. Don’t make it more complex than that. Every accounting system has a way to track past due invoices. Use it, and, most importantly, act on it! That is your money out there. Remember, all truth is in the cash account, so get your money into it.
These are just 5 ideas and there could be 50. If nothing else, I hope this article gets you thinking about invoicing and collecting payments as an integral part of your business process. Changing your invoicing process can improve the health of your business in good times and bad. Bring some focus to it before your clients force you to.
As always, I welcome and look forward to your thoughts, questions and insights in the comments.