In talking to small- and local-business owners lately, I’ve noticed a distinct trend: Collecting money from customers has become even more challenging than ever. Sure, blame it on the economy. But sometimes business owners themselves are the culprits. Many have poor invoicing and collection procedures that create easily avoidable problems. Here are some ways to keep the cash flowing.
• Improve your invoice. Many businesses hurt themselves here. Bills and invoices must be detailed, yet simple and clear. The invoice should itemize everything. This will reduce questions and confusion that cause customers to delay. Avoid cute designs and fancy colors that detract from the business-like purpose of an invoice.
• Use a Web-based billing or invoicing service. Online invoicing and billing services designed for small businesses, self-employed professionals and freelancers are an ideal solution. For example, BillingBoss.com is a free online invoicing tool that lets you easily create, send and track invoices. You can also set it up so customers can pay you online.
• Offer early payment and pre-payment discounts. When you rent a car or reserve lodging, many car rental companies and hotels now offer two prices: A discounted price if you pay in full now; and a higher “pay later” price. You can do something similar.
• Charge a penalty for late payment. First you’ll need to establish a clear and consistent policy explaining that late payments will trigger a fee. Even if you don’t actually charge the fee, or waive it for loyal customers who are late for good reasons, just mentioning it on the invoice tends to facilitate prompter payments.
• Require deposits, down payments and progress payments. While this is standard operating procedure in some industries and professions, other types of small businesses can employ the same tactic. Don’t be afraid to ask for a percentage up front.
• Set reminders and safeguards. Effective billing and collections includes a step-by-step schedule for initial invoicing and all follow-ups. This should include a rule on sending invoices immediately and following up with letters, emails or phone calls if payment is not received in the specified time frame, usually 30 days. Your invoicing process should include safeguards so the right invoice goes to the right customer – always. Use an invoice numbering system and make sure you don’t repeat a number. This can cause all kinds of confusion and delays. •
Daniel Kehrer can be reached at
editor@bizbest.com.
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