In business, your profit is only valid once you get paid. Outstanding payments and bad debts cannot be included in your revenue portfolio no matter how reliable or trustworthy your client is. Also, debt recovery is significantly more costly and time-consuming than the avoidance of bad debts.
This is why it is important to be well prepared and implement payment systems that minimize bad debts. This article highlights a few proactive solutions that improve your chances of getting paid on time.
1. Begin With Clear Terms or Contracts
One of the fundamental elements of a negotiations process is to set clear terms of payment and service delivery. You should agree on every aspect of the payment expectations including the consequences of delayed payments.
It is beneficial to have these terms in writing. Depending on the type of business you run, you may need to have a lawyer present when signing a contract with your client. A legally binding contract is one of the most effective ways to prevent bad debts. This is because both you and your client are legally obligated to honour the terms of the contract.
2. Develop Lasting Relationships
Developing good relationships with your clients is more than a marketing strategy. It creates a sense of loyalty and responsibility. The value of your relationship will drive you to provide better services and your client to make payments on time. Clients who have a good relationship with you are significantly less likely to become bad debtors.
3. Present your Invoices on time
Presenting your invoices to your clients on time prepares them to make payment and communicates that you are serious. If you use a recurring service, make sure you invoice your clients at the same time each month. This will help them to develop a clear system of how and when to pay you. This can inspire your clients to apply the same consistency when making payments.
4. Issue Friendly Reminders
There aren’t many people who deliberately default payments. However, people can be too busy and forget the date their payments are due. Create a system to issue friendly reminders as the due date approaches. You can do this manually or automatically. Your clients will become more aware of the due date and make arrangements to pay you.
You should also use similar reminders to communicate with your clients about the consequences of bad debt. You can issue warnings about discontinuing your service if the payments are not completed by a pre-set date.
You can also use friendly reminders to encourage your clients to pay early. Your incentives can be as simple as a ‘Thank you’ note or winning a mega prize a competition.
5. Employ Multiple Payment Options
Your clients use various payment avenues in their transactions. You can make it easier for your clients to pay you by accepting different modes of payment. Allowing your clients to pay by cash, bank transfer, credit card, check or any other credible means increases their likelihood to pay on time.
You can also implement various payment plans. Your customers can pay for your products or services in instalments. In this mode of payment, you should be clear about the date and size of each instalment. Remember to keep neat records of each mode of payment. These records can then be consolidatedto one common platform to prevent confusion.
A significant amount of working hours are lost making follow upcalls and payment notifications let alone recovering bad debts. If you set your payment terms accurately in advance of the deal, you can significantly increase your chances of getting paid on time.