Without a simple collection process, small business owners can struggle to get invoices paid which will adversely affect their cash flow. As Xero commented in 2018:
“late payments correlate with cash flow. When delays worsen, cash flow can suffer”
If many invoices remain unpaid and cash flow becomes very slow, business owners can struggle to pay their creditors, their staff and themselves.
Sometimes business owners take out loans to cover the shortfall but, if they can’t get their own invoices paid, then they struggle to make the monthly loan payments which can then be fatal for their business.
So, getting invoices paid and having strong cash flow is essential to keep a small business healthy and thriving. That means having a proven collection process in place.
Here are some of the simple processes that I used in my small business to make sure customers paid us on time.
These processes are tried and tested over 15 years. Because our customers always paid on time, I never had to take out a loan. The business was always self-funded, even when it grew to a $12million turnover.
Put these simple collection processes in place, and you’ll soon start to see that you don’t have any overdue invoices to follow up. They will all be paid by the due date
#1 Get Your Invoicing Right First Time
If you only send out ‘Killer Invoices’ (invoices which are perfect), then the chances of your customers raising a query reduce by more than 80%.
It’s a simple but effective collection process – it’s just admin really – that works well. If your customer has a query on an invoice, it won’t be paid.
So make sure all your invoices…
- Are addressed correctly
- Have all the correct details on them
- Contain everything your customer wants to see
- Show your terms of trade and payment date
- Are sent when the order is complete.
If you verify all your customer’s details before sending out the invoice, it’ll be correct.
#2 Include Query Handling in Your Collection Process
To get your invoice paid on time, if your customer does have a query resolve it super-fast. Then they can still pay promptly.
Handle queries gracefully with caring customer service. Using this type of approach, you can turn the query or problem to your advantage.
- If it’s your fault, apologise.
- Explain what you will do to resolve the query.
- Make a time when you will get back to them.
- Resolve the query fast so they CAN pay.
- Contact your customer as agreed – if you don’t yet have an answer, update them.
- Use a customer service approach throughout the process.
- When all is resolved, you are perfectly placed to ask for authorisation of the invoice.
Resolving queries quickly is an effective collection process, and it’s simple. It’s just customer service 101.
#3 Make Good Use of a ‘Courtesy Call.’
The ‘Courtesy Call’ is a term I used in my small business. It’s a bit of an ‘insider secret’ that not many people know about. It’s a very effective part of a successful small business collections process. It could also be called an ‘award-winning’ customer service call.
The purpose is to check to see if there’s a problem that might hold up payment of your invoices. The key here is that you disguise it as providing your customer with outstanding service.
Firstly, check everything at your end to be sure the customer has not already logged a problem or query
With your best ‘customer service’ telephone manner, make a call. Confirm that the order has been completed to the customer’s satisfaction.
When you know the order is complete, you can ask for payment by the due date.
Continue with your best ‘customer service’ and…
- Explain that the invoice is due for payment soon.
- Politely ask them to authorize the payment.
- Ask them to pass it to the person who makes the payments – then follow that up
- Ask for the payment to be included in the next payment run.
- If the payment run is a long way away remind them of the due date
- Ask for a special payment so that your invoice gets paid by the due date.
This is a powerful part of the collection process which doubles as great customer service – which everyone loves. You can avoid having to chase overdue invoices if you do this.
#4 Remember: If People Like You, They Pay You
Nothing much more needs to be said about this part of the collection process.
Getting people to like you is a great strategy for getting paid. We are all much more likely to want to help (and pay) someone we like.
Keep this in mind while talking to your customers, and you’ll start to get paid on time.
These four strategies may seem over-simplistic. But they have proven time and time again to work well. They are super-effective parts of a collection process and can give small business owners an ‘edge’ over their competitors.
What will you start doing and stop doing in your small business collection process to make sure you get your invoices paid on time?
To your business success!