Cash flow is the most critical factor for business success. Having outstanding invoices – and no funds in the bank – can cause major stress on any business. Often, the bigger the business, the slower they are to pay. This means that your biggest invoices may take the longest to get paid.
So, what can a small business owner do? Here are some tips that can help you get paid faster.
1. Sell first and get paid in advance
This is ideal, the holy grail of payment. If you can't get paid in full in advance, have the customer give you a substantial deposit. Depending on the type of product or service, 20-50% of the total cost may be completely acceptable to the customer.
The good part about a deposit is it demonstrates their intent to pay. Many small business owners have gotten to the end of a project or delivered a custom item and received an unpleasant surprise. A deposit also gives you some working capital, which is always a good thing.
2. Offer a quick payment discount
You may be thinking this will make you look desperate. It won't. Big companies do this all the time. Offer your customers some small percentage off the total invoice if they pay within 15 days (or whatever terms make sense in your industry).
You can also consider offering a fun bonus for quick payment, including extra services, a prize, etc. Don't be afraid to get creative.
3. Set up a schedule for invoicing
Many small business owners don't enjoy this task and often fall behind on invoicing clients. I suggest you set up a schedule to stay on top of invoicing, because the quicker you get it out, the faster they can pay.
If you have trouble making yourself do it, hire someone to help you so you have to do it when they are there. True story: A small technology services provider was very concerned about cash flow and didn't understand why they were having issues. It turned out they were behind on sending out invoices. There was $45,000 outstanding! After that, they hired someone to help them catch up and keep them current.
4. Make it easy to pay
Different types of customers prefer different payment options. Let them pay you however they want to! Make sure you can accept checks, PayPal, credit card payments, etc. Don't antagonize people when they are trying to give you money.
Keeping money flowing into your business will enable your business to grow and give you the flexibility to make investments when you need to. You may want to try several of these techniques. Even when used together, you may still have a few laggards, but most of your clients will be paying you on time (or maybe even early). And how nice would that be?
Carol Roth is the creator of the Future File™ legacy planning system, a "recovering" investment banker, business advisor, entrepreneur and best-selling author of The Entrepreneur Equation. She also "plays herself on TV", as a reality TV show judge, media contributor and host of Microsoft's Office Small Business Academy. She's recognized internationally as a small business expert and has worked with startups to the biggest companies and brands in the world on everything from strategy to content creation and marketing to billions of dollars in capital raising and transactional work. She's been a public company director and invests in mid-stage companies as well.