When you’re looking to get paid on time, there are many channels you can explore, but one of the most assured ways is to motivate your customers to do so. How? By rewarding your customers for paying early and imposing consequences for those that choose to pay late. Use these incentives to collect your money faster. Here’s how:
Early Payment Rewards
The details of the discount in your written credit policy, the credit application and the contract your customer signs (if separate). Make sure they are well aware of the discount before doing business with them. The most important place you will include this information, though, is in the invoice.
On the invoice, you will want to address the discount with something such as “2/10 net 30”, which means that payment is due within 30 days, but if payment is made within in 10 days, they will receive a 2% discount. This number is standard (although can be altered) and reads very well to people who are used to paying the bills. Early payment rewards work particularly well for companies you’re billing that have a separate accounts payable department. In fact, they tend to cut checks first when they see this stated.
Of course, early payment discounts are not for everybody. You have to evaluate what your business is in need of most: fast cash or the full payment?
Late Payment Consequences
On the opposite end of the spectrum, you should also consider adding a late fee when a customer misses their payment deadline. This help entices the customer to get the money in on time, instead of flirt with the due date. If worse comes to worst and the customer does pay late, it will at least financially compensate you for the wait time.
To implement the process, you, just as with early payment discounts, need to let it be known from the very beginning. Include the late payment terms in your credit policy, your credit application, contract and of course, the invoice. Be sure to make a note at the bottom of the invoice stating if the payment is not received by the due date that a late fee will added. Be precise with how much that fee will be, so there is no confusion. It’s important to include it on the invoice as there might be someone different cutting you the check than who signed the contract.
Once payment becomes past due, send the customer a new invoice with the late fee added as a line item. Be sure to include a note of the change. You can also now use the fee as leverage: you may be able to motivate customers to pay you immediately by waving the charge. Either way, be sure to verify that your late fee is compliant with your state’s usury laws.
Positive incentives are a always better customer experience than imposing consequences, but this is your money. You did the work and deserve to be paid on time. Don’t be afraid to take the necessary measure to motivate customers to do just that.