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How to get your small business customers to pay on time

Many small business owners are unsure as to how to get their customers to pay on time. As a result they often find themselves waiting months, for their customers to pay their bills. This can be a real hardship for a small business that has limited cash flow and resources. However, there are things that can be done that will help small business collect, from their customers, in a more timely manner. Here is what you need to know about how to get your small business customers to pay on time-

  • Send an invoice right away-The first thing to do is to set a process in place that sends out an invoice, as soon as an order is taken. The sooner you get an invoice sent your customer, the sooner you will get paid. Studies have shown that the longer it takes to send an invoice, the longer the customer will delay on sending payment. You wan tot make sure that your customers receive a physical reminder, that they need to pay their bill promptly. The next invoice that you will send out is one that is generated about a week, after the order was shipped. You want to make sure that your invoicing shows your clients that they need to pay their bill soon, or they will be charged interest after the first thirty days.
  • Be careful who you extend credit to-Many small business owners feel that they have to extend credit to every customer, in order to have them purchase from them. This can be a serious mistake to your business' finances. You should be careful about who you extend credit to. You should get to know your customers before you extend credit to them. In addition, any customer who applies for credit should be investigated thoroughly, before you make a decision. You don't want to extend credit to customers, who have a questionable credit history. If you fail to do this you may find yourself with lots of customers who are not making it a priority to pay their bills with you on time.
  • Require a deposit-Many small businesses find that when they require their customers to put down a deposit on their orders, they are much faster about paying the remaining balance. Requiring a deposit from your customers insures two things. First, it encourages your customers to pay the rest of the bill faster, since they have cash tied up with your business; secondly, it provides a better cash flow, for your small business, since you are not waiting to receive the entire payment, from your customer. Typical deposits range from 20-50% depending on the size of the order.
  • Be clear on your payment terms-You should be clear with every customers about exactly what your payment and invoicing terms are. This will let them know that you require timely payment. You want to make sure that your payment terms are on every invoice and are highly visible. You should include the due date where it can be easily seen. This will serve as a visual reminder to your customers that they need to pay you by the due date, or face a penalty. You should also let them know exactly how you will calculate the interest on their unpaid balance. Many small businesses find that it can also be helpful to offer a discount, for prompt payment. A small incentive can often time be enough to get customers paying on time.
  • Have a follow up procedure-If you want your customers to take your seriously about requiring prompt payments, and then you need to follow up when they are late. You should have a system in place that explains how you will contact them and when, if a payment is missed.
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