I have a running “joke” with my business partner, Al. He’ll tell me how big of a job he just sold, and then I’ll tell him that until we get paid, it isn’t sold, it’s a gift.
It’s true, though. Until you get paid for services rendered and equipment installed, it really isn’t a sale. In fact, it’s just a big fat liability. Will the customer go on vacation and keep you on the back burner until they return? Will they decide that something needs to be added and they don’t want to pay until this new work is complete? Will they just drag out payment because it isn’t high on their list of priorities? Or what if the couple gets a divorce and it gets dragged out in court or—heaven forbid—what if they die? I mean, I’m sure it’s happened…
The bottom line is without a steady stream of money coming in, we’ll all go out of business sooner or later. You get enough people who decide to hold off on paying their bill, then you’ve got a giant boa constrictor on your cash flow.
I’ve been handling the billing/collecting for our company for as long as I can remember, and our system at Custom Theater includes the installers keeping worksheets of all their time and materials used on a job. At the end of the day they put the worksheets into my box and I enter them into the computer, creating an itemized invoice in our accounting software. At the end of the job, I compare these worksheets to the original proposal to make sure nothing was missed and then email or mail a bill to the customer.
It’s all pretty simple, but it works for us. Well, it works for me, and since I’m the type-A billing/collecting personality at our company, that’s what matters.
A few years ago I started making notes in each customer’s electronic file about the date when I sent the invoice and how/where I sent it. When I notice that a month or more has passed, I’ll send another bill and make another notation. (This is also perfect for forecasting who might have a history of “slow paying” and might, say, be required to pay for everything in full upfront for future work. Firm but fair.)
Earlier this year I noticed more and more people were requiring me to send two and even three invoices before they’d pay. Maybe it’s the economy. Maybe it’s global warming. I don’t know. Usually these are the smaller, sub-$1,000 jobs that don’t make or break our operating costs, but it’s still money that’s outstanding and frustrating as it takes time to generate another bill, address another envelope, pay for another stamp, etc. And, you know, we did the work in a timely manner and deserve to be paid in kind.
I noticed that on many of the bills I receive there is some verbiage about “minimum payment due” and “late payment notice,” so I decided to edit our invoice page and added a line right below the balance due in bold print that reads:
“Invoices not paid within 30 days of due date are subject to late fee of 1.5% or $7.50 per month, whichever is greater.”
Since adding this simple line we have had a phenomenal increase in prompt payments. My number of multiple billings has dwindled to virtually zero since this new “policy,” and most bills are now paid within two weeks. We’ve also had people calling us to tell us that they have sent payment and apologizing that it might arrive after the 30-day mark.
This has also given me easily defendable ammunition when it comes to actually charging a late fee to a particularly “stubborn” customer. (So far, it has been just one.)
I also added a second line to our invoices that reads:
“Credit card payments over the telephone are subject to a 1% transaction fee and limited to $2500; Credit card charges over $5000 subject to 3% transaction fee”
We explain to our customers that since our bank has required us to get a new “chip-reading” credit card machine, they are charging us a higher transaction fee for hand keying charges. And that while we’re happy to take their card over the phone, we charge a 1% “convenience fee” for this. So far only one person has objected to the 1% charge (he brought in a check). Shockingly, most people are very understanding, and even explain they understand the cost to a small business to accept credit cards.
If you’ve been struggling with slow-paying clients, try adding something to your invoices that puts a clock on payment with a penalty for being late. I bet you’ll find your mailbox fills with checks in a matter of days!