As a self-employed individual you should try to collect due payments as soon as possible. Waiting too late to collect a debt, increases the chance of not being able to collect on it. It also disrupts your cash flow which can be used in other areas of your business.
Ways to collect from customers quickly
Have a collection policy
You should have a collection policy included in your client agreement. A collection policy should clearly state how nonpayment would be handled and how services are billed. Here are some factors to consider in setting a collections policy:
- Requesting deposits for large sales.
- Stopping the project until payment is made.
- If a product sale, invoice customers for products when the order is processed instead of when it is shipped.
- Requesting payments in advance and offering a price discount if the customer pays in advance
- Charging interest on late accounts.
- Follow up process on customer complaints
- Time frame to call customers who owe
Email invoices on a regular schedule
Customer invoices should be mailed or emailed on a regular basis. If you mail customer invoices be sure to charge a fee for the additional expense to mail it. This way customers are discouraged from requesting a mailed invoice.
Invoicing on a regular basis can be automated. Customer’s statement must contain any outstanding debts, new transactions and the total owed. Most accounting information systems automate this information.
Charge interest on customers who don’t pay in 30 days
Examine your accounts receivable aging report on a timely basis to identify late accounts. Once late accounts are identified charge a fee for late payment.
Charging interest for unpaid balances that are over 30 days is one way to discourage not paying on time. When there is a consequence, customers are apt to pay earlier.
Accept credit cards
Accepting credit card allows for faster payments. Also customers who pay with credit cards are less price sensitive. To minimize the fees of accepting credit cards, you could set a minimum amount customers must purchase before using a credit card. The fees and extra administration required might not be worth it for small invoices.
Installment plans
If you are engaging in a long term project that is priced upfront, you can offer an installment plan in which you allow the client to pay a certain portion of the fee owed monthly.
Requiring a down payment
Requiring a down payment is another way to increase collections. Also a down payment ensures that a client has bought into the project and is more likely to pay once the project is completed.
Collection agency
If all else fails, warn the client who will be enlisting the services of a collection agency. Nobody likes to deal with collection agencies: This will speed up the payment.
Summary
Collecting on your receivables on time helps you plan better as a business owner. Being able to forecast your cash flow is one of the pre-requisite to planning for growth. If you plan to grow your business, you cannot afford customers owing you over 30 days.