It's no mystery why so many small businesses take swift action against slow-paying customers: they've rendered a service and they rely on steady cash flow to pay their own bills. In difficult economic times, a hard-line philosophy is even more understandable.
Despite the difficulty it causes their own bottom lines, many of the highly rated companies on Angie's List are doing their best to take a soft approach to slow payers according to a recent member survey.
While most companies say they are seeing an uptick in slowed payments, 44 percent of the 260 companies responding to the survey said they don't have a lot of slow-paying customers. About 10 percent of respondents are dealing with this as a serious problem for the first time.
While nearly universally tipping their hats to "great customers," companies whose customers are paying on time attribute this 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
“Small business owners are sympathetic to most of their customers because they’ve come to know them well and may even have become friends,” said Angie’s List founder Angie Hicks. “They recognize the economic pressures and most of them are open to alternative ways to get paid, including extending payment terms.” This compassion, while admirable, should be tempered with smart business practices, Hicks said.
“Businesses owners should not let their sympathy outweigh their business sense. One business owner told us that she let a bill go uncollected for months and now won’t likely ever see her money short of taking her client ― once a friend ― to court.”
Hicks advises clear communication on both sides of the transaction. Consumers have every right to expect high quality service from the professionals they hire, but they also owe it to those pros to be honest when they find themselves strapped for cash ― if not because of ethical obligations because it’s the neighborly thing to do, she said.
“One of our service company owners said his slow-paying customers are often embarrassed to see him at the grocery store but the encounters are inevitable because it's a small community. Another learned that instead of paying his bill, one customer took his family on an impromptu trip to Las Vegas,” Hicks said. “More often than not, these people are neighbors and word gets around fast. Honesty goes a long way when you’re heading into trouble. Many of our companies say they’d much rather work with a customer who’s having bill trouble than take legal action.”
Angie’s List 9 Tips to Business Owners to Help Ensure Timely Payment:
- 1. Talk to your customer: Be upfront with your payment requirements so there
are no surprises. Stay in constant communication with clients. Listen to your
customers and answer their questions.
2. Screen potential customers when they call: Trust your instincts. If you don’t feel good about doing the job for a potential customer, walk away.
3. Offer upfront pricing: If you can set a firm price in advance, do it to minimize sticker shock and delayed or non-payment.
4. Require payment at time of service: Be clear in your terms that payment is due immediately upon completion of a job and consider progressive payment as phases of a project are completed. Don't continue with successive phases unless the bill is current.
5. Accept credit cards: Require customers to sign a credit card waiver to empower you to charge the customers' credit cards if accounts becomes past due.
6. Consider alternative payment options: Consider short-term financing plans to recoup payment from customers who are unable to make full payment. If you charge interest, be clear about the rate. Put the financing plan in writing and have the customer sign off on it.
7. 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.
8. Get the customer’s email: Emails are more likely to be read and noticed than an unopened paper bill ― and they’re more cost-effective.
9. Don’t take the law into your own hands: When all else fails, you may have 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.