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For most businesses, but specifically small to medium-sized companies, collecting payments from customers in a timely manner is vital to cash flow and overall business stability.
Unfortunately, late payments are not uncommon; they’re the norm. 48% of all invoices sent in any given month are paid late, an issue that costs the global economy a shocking $40 billion each year. Businesses waste hours of labor costs chasing unpaid invoices or lose revenue to legal entities and debt collectors.
However, with the effective payment collection strategies shared here, your business can work to maintain a steady cash flow, build strong customer relationships, and reduce the number of unpaid invoices.
Table of Contents
Why Collecting Customer Payments is Challenging
Regardless of the industry you’re in, it’s likely your business has experienced some difficulty collecting customer payments.
Collecting late payments can be challenging for a number of reasons, including:
- Lost invoices
- Unclear payment instructions
- Financial issues
- Lack of incentive to pay on time
- Unexpected charges
More than anything, however, studies have found that forgetfulness is the most common reason for a delinquent payment. 35% of customers pay late because they weren’t reminded regularly enough to settle up.
15 Tips to Collect Payments from Customers
The following tips will help you develop a comprehensive strategy for handling late payments and inspire your business to implement new ways to incentivize customers to pay invoices in a timely manner.
Send the Invoice Promptly
Now that we know the main reason customers pay late is due to forgetfulness, it’s clear that sending an invoice as soon as a service is completed is going to be a crucial element of receiving an on-time payment.
Think of it this way: the sooner a customer has your invoice in hand, the sooner they can send your payment. Sending an invoice quickly ensures your service or product is still relevant to the customer and their project. Waiting too long could mean the customer forgets that they haven’t paid and your business won’t be as fresh in their mind.
Make a habit of sending invoices at important milestones in the project or as soon as the work is finished.
Accept Multiple Payment Options
If a customer has to jump through hoops to pay you, it increases the likelihood that the payment will either be late or never arrive. Making it easy for your customers to pay should be a top priority in your collections process.
Because your customers’ payment preferences are likely diverse, it’s important you provide a range of payment options. Contact-free routes, such as credit or debit cards, mobile payments, and digital payment services like Stax, Paypal, Google Pay, or Stripe are options that allow customers to pay in their preferred way.
Aside from making it more convenient for your customers, offering diverse payment methods increases conversion rates, reduces abandoned carts, and increases brand appeal.
Make it Clear How and When to Pay
Instead of waiting for customers to ask payment questions after you’ve sent your invoice, clearly outline your payment policies to customers upfront. When communicating your policies to customers, make sure to include:
- How much the service or product will cost
- Accepted payment methods
- Payment due dates
- Late fees
- How you’ll send their invoice
Provide customers with clear and easy-to-understand instructions and make sure to stick to and enforce your payment terms.
A smooth payment process will enhance your brand’s trustworthiness and reputation while helping you collect payment within an ideal time frame.
Make it Convenient to Pay
In the modern world, it’s not enough to simply offer customers multiple forms of payment. Your goal should be to make it as easy and convenient as possible for customers to pay you. This means offering digital access to your payment portal through a variety of online channels such as:
- Text-to-pay. Businesses can text subscribing customers direct payment links to their mobile phones via an SMS partner, making it convenient and accessible to settle up. As a bonus, text payments have a 98% open rate compared to email’s 20% open rate.
- Electronic invoices. Sending electronic invoices to customers via email or SMS is a great way to ensure paper copies don’t get lost or forgotten. Electronic invoices can even contain direct payment links, making it easier for customers to be routed directly to payment portals.
- Text-to-pay button on your website. Adding a “Pay Now” button to your website allows customers to pay deposits or submit payments outside of business hours.
- Use QR codes. Placing QR codes on documents, websites, or invoices can be a simple way to direct customers straight to your payment collection portal.
- Web chat. Both live agents and AI chatbots can suggest payment options during live chats and share direct payment links with customers.
Request Upfront or Partial Payments
The easiest way to avoid chasing down payments after you’ve completed a project is to require upfront payment from your customers. This solution may not work for all businesses, though, as it requires trust between customers and sellers. Full, upfront payment is likely only an option if an established business relationship exists. However, if possible, upfront payments can guarantee cash flow and ensure clients are dedicated to the project.
For businesses that don’t have established customer relationships, requiring partial upfront or retainer fees is also a good option. Additionally, this applies to larger projects that may be expensive or long-term, making it impossible for clients to foot the entire bill for complex projects upfront.
The key is determining which payment strategy best fits your business’ customer demographic and tailoring your strategies for individual high-value customers.
Offer Payment Plans
Payment plans benefit both the seller and customer, as they increase a business’s chances of obtaining full payment and help customers complete payments on a flexible schedule that works for their financial needs.
Periodic billing options are especially useful when services or goods are particularly expensive or unexpected, such as home repairs or healthcare services. Plus, offering payment flexibility increases customer satisfaction, improves loyalty rates, and fosters a sense of trust.
Offer Payment Extensions
Certain situations may necessitate offering a one-time extension or grace period to a customer who can’t pay on time. This offer should not be given out lightly, as certain customers could interpret it as a sign that your business doesn’t take payment deadlines seriously.
Extensions, or grace periods, should only be given to brands you have an established relationship with and generally pay on time. Extensions can be useful tools to ensure a continuation of your relationship with the customer, as they can increase customer loyalty, build your brand’s credibility, and help you eventually receive full payment.
Other options include offering one-time waivers for late fees for trusted customers or placing customers on installment plans.
Allow Recurring Payments for Regular Customers
Payments that are scheduled in advance can avoid many collection issues. Establishing an ACH debit for regular or recurring payments creates a transparent process that can boost customer loyalty and increase profits by reducing administrative time during the payment collection process.
Consider offering multiple recurring payment options to customers to communicate flexibility, such as yearly, monthly, or quarterly draft schedules.
Offer Unique Invoice Schedules
Specifically for B2B businesses, offering a unique invoicing schedule can be a great option for not only ensuring your businesses gets paid, but also gets paid on time. Unlike in the B2C marketplace, B2B service businesses can have extended payment terms, and each customer may need to select a unique invoicing schedule that works for them.
It’s important to foster beneficial relationships with your B2B customers, and offering customized payment solutions is an excellent way to retain and satisfy your customer base.
Incentivize Early Payments
To encourage clients to pay invoices before they’re due, offer discounts or rewards to incentivize early payment. The incentives you offer should be exciting and relevant enough to your customers to make them take action, such as offering a certain percentage off their final bill, a gift card, or a discount on their next purchase.
Incentivizing early payments can help the payee’s credit as well, saving them money on the overall cost and reducing the chances of needing to borrow money to pay late or overdue payment fees.
Other options include offering discounts to customers who choose to set up a recurring payment option or a discount for payments made on time at each milestone in the project.
Invest in Invoice Management Software
Utilizing digital invoicing tools can help your business keep track of projects, estimates and invoices, track billable hours, and host easy-to-use payment portals.
Tools like Square, Freshbooks, and Intuit QuickBooks can help businesses keep track of outstanding invoices, making it easy to set up recurring reminders and contact customers before late fees are applied.
Share Late-Payment Terms
Payment transparency is key to creating long-lasting relationships with clients. Clearly communicating late payment terms to your customers can help incentivize them to pay on time and reflect positively on your business.
Neglecting to be transparent about late fees with customers can result in poor brand reputation and damage your customer’s view of your business as a transparent and trustworthy organization. Further, if there aren’t payment deadlines or late payment fees communicated beforehand, customers may not feel incentivized to pay you on time.
Plus, if the situation requires legal intervention or collections, you’ll need to have clear evidence that you communicated your late payment terms to your customer upfront.
Consider Charging Late Fees for Overdue Payments
Not all businesses choose to charge late fees on payments, but when clearly communicated ahead of time, fees can be an effective way to incentivize customers to make payments on time.
Typical late fees land around 1.5% to 2% of the total invoice amount and are generally applied once an invoice is not paid within 30 to 60 days. However, each business should establish terms and conditions that are relevant and appropriate for their industry and location.
Payment terms delivered to the customer before the project begins should detail your late fee policy, including the penalties, deadlines, and additional fees they’ll be responsible for.
Send Regular Payment Reminders
As we discovered earlier, most customers aren’t actively avoiding paying your invoice. It’s more likely they’ve forgotten they still haven’t paid you. One way to combat this forgetfulness is to send regular reminders before, during, and after the payment due date.
Scheduling reminders to go out to customers automatically can help alleviate the burden on team members and ensure that customers receive timely prompts and reminders.
It’s crucial to diversify the channels of communication you’re using to send payment reminders as well. Popular payment reminder channels include:
- SMS text message
- Phone calls
- Mailed invoices
- In-app reminders
Your payment reminders should reiterate your payment terms, emphasize the due date and any late fees that will apply, and provide an easy way to complete the payment. This may be via QR code, SMS link, customer service representative, or another method of seamlessly transporting the customer to a payment collection page.
Selecting a follow-up schedule that isn’t pushy but is regular enough to keep your business top-of-mind with customers is key. Use the following schedule as a blueprint for developing your own payment reminder program:
- One week before the payment is due
- On the due date
- Two days after the due date
- One week after the due date
- Two weeks after the due date
- Every week following
Last Ditch: Collection Agency
Ideally, your customers will pay you on time or soon after their due date. And generally, businesses can work out a payment plan or discount to ensure customers can eventually pay their invoices in full.
However, there are extreme circumstances in which an overdue payment is never received, and your business may have to consider turning the invoice over to a debt collection agency. This solution should be a last resort, as the collection agency’s fees will eat into your profits and the process will likely permanently damage your relationship with your customer.
On the other hand, if the service or project was valued high enough, it could potentially be worth it for your business to recover some of the payment you’re owed. Just be sure that you’ve followed all legal obligations and select a reputable debt collection agency.
Stop Late Payments: Improve Collections with Textedly
Collecting payments from customers can be a challenging and time-consuming part of owning a business. That’s why partnering with a modern SMS payment platform like Textedly is so important. SMS has the highest open rate of any communication channel, making it crucial for sending payment reminders.
Textedly makes it simple for vendors to leverage an SMS payment solution, download payment data, and view bank deposits. And for accounts with past-due invoices, Textedly users can set up automatic payment reminders on customized schedules to prompt customers to take action.
Plus, with Textedly’s Text-to-Pay feature, businesses can automate text messages to share secure payment portal links with customers and process payments in real-time. Textedly users even have access to pre-written payment reminder templates to streamline the collection process for both parties.
Ready to say goodbye to late payments? Try Textedly for free today.
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