Collecting payments effectively as a small business
As a small business owner, it’s up to you to make your business work for you, rather than the other way around.
One of the biggest problems you may find is getting clients to pay you for your work. It may seem so simple: you do a service, your client pays you and you’re done. But, more often than not, it’s not so simple. You deliver to the client, send the invoice and then wait. And then wait some more.
“The cheque’s in the mail”, they say. Soon enough, you have several unpaid invoices.
By setting up payment policies, systems and standards upfront, you can then concentrate on the work you want to do, without worrying about the quicksand of cash-flow management problems.
There are several questions you need to answer to find a system that’s right for your creative small business: do you have a client pay a deposit upfront? When do you send an invoice? What does the bill look like? How do you pay yourself if the client hasn’t paid you? If/when a client doesn’t pay you, do you charge interest? When do you follow up? Do you send a letter from a collection agency after they don’t respond?
Terms and Conditions
Late payments are an – unfortunate – fact of life for many small businesses, since clients often give low priority to bills from smaller companies. By setting good terms and conditions, you can ensure a healthy cash flow. If you don’t specify terms and conditions you are putting yourself at risk of ambivalence and misunderstandings.
Establish the arrangement in writing to cover yourself, so clients have no opportunity to go back on their word. Imagine the worst cases possible and all of the awkward scenarios of what could go wrong and then what you would do in each case.
What to include:
- clear definition of the services provided
- the payment terms and due dates
- timeline for delivery
- any guarantees offered
- late fees (ex: 2% per month)
- what happens if either party doesn’t deliver/pay
- what notice is required to get out of the agreement
Standard Payment Options
A great option for creative service businesses is to have clients pay a (25%, 50%) deposit to commence services. The amount is up to you and may depend on upfront costs. The balance of the invoice is then due once the client has reviewed and approved the completed services, immediately prior to any printing/fulfillment/deployment. Exceptions to this policy should include rushed turnaround services, which should be due in full upon commencement.
Another great option is a flexible monthly payment plan. For example, you could request three equal monthly payments. Another option is 50% deposit to start, and then two equal monthly payments with the entire invoice paid within 90 days. For very large amounts, set a 20% deposit to start, plus five equal monthly payments with the entire invoice being paid within 180 days.
Ask a new client upfront which specific information will they (or a manager) need to see to release payment. A specific contact name? A phone number? The contract attached and mailed to a certain department?
Rather than allowing clients to pay by a snail-mailed cheque, ask them to pay with a credit card or another electronic solution, so you can manage your invoice payments in a single place.
Your client will get an email with a shared link that takes them to a payment gateway. Set up any automatic recurring payments to be made via credit or debit card on the specified due date(s).
Remember to have a signed agreement that outlines the payment terms and dates, the terms and conditions, as well as credit card authorization. For security purposes, require a credit/debit card to be kept on file for all payment plans. Make sure that your client knows that it is their responsibility to ensure that a current payment source is on-file for any and all upcoming charges. Late or missed payments due to un-billable accounts will be charged late fees.
Automatic Payments
After you have set your payment standards and procedures, it’s time to set up an automated payment option to ease transactions. You don’t want to spend time following up on outstanding invoices, do you? The whole process is frustrating for both you and your clients, so why not automate the collection of invoices? There’s a balance to be found between feeling pushy and not standing up for yourself. Many small business owners are so irritated by following up on late invoices that they stay broke.
By using a third-party processor for collecting your payments, you take a lot of the administrative struggle off of your workload. The ability to schedule and automatically withdraw payments also eliminates those frustrations for both you and your customer.
Sure, accepting credit cards are convenient for your customer, but they are not so convenient for your bottom line. Pre-authorized debits (PADs) can also be collected online and are a fraction of the price of credit cards. Traditional methods of digital payments are percentage-based fees.
If you start to grow as a business, so will your credit card fees. PADs, on the other hand, are flat-rate and are much more budget-friendly for your small business.
To decrease the friction of PADs, make sure to collect your customer’s bank information and consent when they are signing up for your services. By making it clear from the beginning of your relationship that you will be collecting payments this way – on a determined schedule and via their bank account – you set a precedent for them and other customers.
Once your customer has given their consent and banking information, you can schedule their withdrawals based on your schedule. Payments can be taken out weekly, monthly, annually, or any other schedule you can dream up.
Having the ability to collect payments easily, on a timely schedule, and with all the convenience of traditional digital payments, Rotessa and PADs help your small business collect payments effectively.
Take control of your accounts receivable procedures by setting terms and conditions, standard payment options, and automatic payments. The results will be improved cash flow, minimized legwork, and by avoiding those awkward late-payment conversations, improved client relationships.
