Businesses depend on the money they receive from their customers, which is why they strive to speed up the payment process. Running into issues with their cash flow could mean getting into debt just to keep their head above water.
Since it’s better to be safe than sorry, you should start thinking about this long before these issues arise, and this article will explain how you can do that by improving your billing process.
If you choose to follow these eight steps and revamp your invoicing and billing process, you will be able to collect payments faster, and therefore, improve your cash flow.
Let’s see how you can collect payments faster!
Agree on the Terms Beforehand
Before you sell a product or service to a customer, make sure they understand the conditions under which they’re receiving it.
You don’t want to try to enforce a rule from your terms and conditions (T&C), only to realize that your customer hasn’t understood them.
To be fair, almost no one reads this information in the first place.
Deloitte’s survey shows that an astonishing 91% of people simply agree to the T&C when signing up for online and other services.
The number goes up to 97% for those aged 18-34. The main reason behind this fact is the complicated language they are written in.
Therefore, when writing terms and conditions, make sure to be as clear and precise as possible so those reading can understand.
Bombarding your customers with industry terminology and complicated sentences won’t do much for you.
If an issue arises because the customer didn’t understand something mentioned in the T&C, you might lose them and all the business they bring.
The point of T&C is to set out all the rules you and the customers should abide by concerning the purchase in question.
They should state your obligations towards the customer and vice versa, explain how they can return the product or cancel a service if they’re not satisfied, as well as describe what happens if they do not pay you on time.
Moreover, you have to explain to the customer what you’re offering, including the description and type of product and service and all the payment information.
When you do all that, the customers who read your T&C will know exactly what they’re getting into and won’t be surprised if you act on the rules.
For example, if someone doesn’t pay on time and gets charged a late payment fee, they should know they’ve agreed to that by signing the T&C.
Use Fixed Fees
Instead of charging your customers for every hour of work, think of switching to fixed fees.
A fixed fee means that you charge your customer a set amount of money based on the service you provide and not on the hours you’ve spent working for them or how much they use your service.
This action will dramatically simplify your billing process, which is just what you need to ensure you get paid fast.
Instead of calculating the number of hours you spent working on each service, simply charge a fixed fee for each customer.
Many companies that provide software as a service (SaaS) charge users depending on their chosen plan. Each tier has different options, and the customers select the one that suits their needs the most.
Therefore, you don’t earn the same from each customer, but you also don’t provide the same service to them.
To illustrate this, let’s take Netflix as an example. This streaming service doesn’t charge its users per hour of content watched. Instead, they offer three different payment plans.
That way, the customers decide what additional features they want, and they pay for that plan each month.
However, they can always change their mind and choose a different option, meaning they don’t always have to pay the same price.
The point is, Netflix charges the same amount to everyone who chooses the same plan. In other words, they don’t waste time checking how many hours the users spend watching content and then calculating the price off of that data.
Make Your Invoices Easy to Understand
Don’t put too much information on your invoice as the customers may feel overwhelmed by the amount of new data.
If they do feel that way, the customers might simply decide to deal with the invoice for another time when they feel like they have time to read through all of it. This also means you won’t get paid right away.
Therefore, you should keep the data to a minimum, limiting yourself to only the information necessary for the customer to understand what and how they’re supposed to pay. If you’re not sure what data to include, check out this article.
Use a font that makes the text easy to read and even skim through, so the customer understands what’s on the invoice at first glance instead of having to zoom in to figure out what they’re dealing with in the first place.
The most important parts of the invoice, such as the total or the due date, should stand out from the rest, so bold it or separate it with blank spaces.
A good idea is to write simply so that everyone can understand you. If you use industry-related terms to make you seem professional, you’ll probably pull it off, but the customers might not know what you’re talking about, so is it worth it?
You’re not going to impress your customers with complicated terms, nor will it improve their shopping experience in any way.
When listing the services of products you’re charging the customer for, be as specific as possible to avoid confusion.
For example, if you’re in the event organization business, don’t list your service as “event organization” as the term is too broad. When the customer reads the service name, it won’t exactly ring a bell right away.
You would see better results after adding more details, such as “outdoor team building event—rafting,” for instance.
Keep Your Terms Reasonable
Ensure that the information you do include on your invoice is accurate, clear, and reasonable. By that, we mean that you shouldn’t ask for the impossible.
Expecting the customer to pay on the same day you invoice them is unrealistic and could lead to dissatisfied customers. However, setting the due date to 15 or 30 days from the invoice creation date is fair.
However, here’s an interesting fact: the more time you give your customer to pay, the later you will get your money. In fact, they’ll probably break the deadline.
So, why set the date to 30 days and get paid in 37, when you can get paid earlier simply by giving them a shorter deadline?
If you want to offer an incentive for customers to pay early, an early bird discount is always a good strategy.
Promise to take off a percentage of the total amount if the customer pays before the due date, and you’ll see a rise in your early payers, and therefore your cash flow will see an increase sooner than expected.
Of course, you can also impose penalties for the late payers.
People are more likely to pay on time if they expect to be hit with something like a late payment fee otherwise.
Make sure to stress that you will add a percentage to the total amount for each week, fortnight, or a month they are late with paying, and you should see an increase in early or on-time payments.
Allow for Multiple Forms of Payments
Allowing your customers to choose between different payment types is guaranteed to help you get your money sooner.
If you happen to offer electronic payments, which you should, your cash flow will improve, as customers will have the option to pay using a single button.
In other words, different payment options speed up the payment process as you’re bound to offer at least one type of payment the customer is used to.
Inc has analyzed over 300k invoices and found that companies are 30% more likely to get paid if they offer online payment, so definitely look into these options.
On top of that, the Global Payments Report analyzed payment methods used worldwide and found that digital payment/mobile wallets were the top pick for online and point-of-sale (POS) shopping in 2020 at 44% and 25%, respectively.
The same report predicts that digital payments will continue to rise in popularity in the next four years and will stay the top choice for online (55%) and POS payments (33%).
Therefore, it’s in your best interest to offer them.
Moreover, Fiserv’s survey shows that 17% of people who don’t use automatic payments at the moment would make the switch if the provider made it easy to turn the payments on and off.
An additional 13% would use recurring payments if it were possible to pay with debit cards, 11% more if ACH payments were an option, and 9% said the same thing about credit cards.
Therefore, a company that offers a variety of payment options and makes it easy to switch automatic payments on and off could see an increase of a whopping 50%.
Why does this matter to you?
Recurring payments ensure that you get paid on time every month as you automatically charge the customer using the payment data they’ve entered during the first checkout process.
Therefore, all the customers who sign up for automatic payments are the customers that will undoubtedly pay on time and increase your cash flow as expected.
The point is that the more options you give your customers, the higher the chance you’ll be able to offer their preferred method, thus increasing their satisfaction and loyalty.
Send Invoices at the Same Time
You’ll get paid a lot faster if you email the invoice to your customers at the same point of the shopping process each time.
This action sets a routine and lets the customers know when they can expect to hear from you.
In other words, someone who’s not a first-time customer will know that you will invoice them at the same point in the process, be it right after the purchase, after the shipment confirmation, or after delivery, depending on your personal preference.
Whatever option you choose, make sure to stick to it instead of sending the first invoice after the product has been delivered and then the next one as soon as the order is confirmed.
This type of variation can confuse customers, especially if the payment terms for both invoices are the same, e.g., 30 days from the invoice creation date.
In that case, it’s not fair to ask one customer to pay 30 days after the purchase while asking another to do so 30 days after receiving the order.
Sending invoices at different times reeks of inconsistency and poor organization, which means it might turn away some of your customers who are looking for someone more reliable.
McKinsey did extensive research on customer satisfaction and found that the essential factor lies in the company’s consistency and what it provides to customers.
According to them, users want to have consistency across their customer journey, including invoicing and payment.
Automate Payment Follow-ups and Reminders
If you want to get paid on time, you need to remind your customers of their outstanding invoices.
The sad reality is that 16% of all small business invoices are paid late, which means you have a high chance of chasing payments. Therefore, you shouldn’t wait until the due date to remind the customer they owe you money.
Instead, after delivering the initial message containing the invoice, follow it up with a reminder a week or two in, depending on how far away the due date is.
Contact the customer again a week before the due date to remind them of the unpaid invoice, and do the same on the due date.
At this point, the payment is not late yet, and you’re still trying to motivate the customer to pay on time without acquiring any late payment fees and negatively affecting your cash flow.
However, once it’s past the due date, you should send another follow-up email to your customers. In this email, you should remind the customer that they haven’t paid you on time and inform them of what will happen if they do not pay soon.
Now is the time to remind them of the terms they’ve accepted, including any late payment fees that you’ll add. If possible, offer your help to the customer if they’re having an issue with the payment process.
It is essential that you follow up with every failed payment. This type of error often happens with recurring payments where the customers enter their payment data just once and get charged automatically from that point.
However, the card might get canceled or replaced at a certain point, and the payment will fail.
A simple notification of the failed payment will make the customer double-check the information and correct it as soon as possible.
The best way to go about these emails is to automate them, i.e., let technology do it for you.
You’d spend hours each day trying to email people their invoices, reminders, and follow-ups and do it all manually. So, think of investing in an automated billing software, like Regpack, that offers this feature.
Invest in a Good Billing Software
Relying on technology to invoice and charge customers will help you collect your payments on time.
When trying to get paid faster, having a good billing strategy is a must, and that includes having an overview of your payments.
You have to know which customers have already paid, and who still owes you, as well as who has accumulated late payment fees, and who is eligible for the early payment discount.
Besides, you also have to have insight into who has already received their invoice, as studies show that 11% of customers never do. In such cases, the company can’t even expect someone to pay when there’s no invoice.
If you don’t know whether you’ve sent an invoice or if someone’s paid it, you have no way of reminding the customers to do so. Therefore, you can’t do much to increase your cash flow.
Moreover, you also have to hold onto all this data so that you’re always able to check a customer’s payment history if you want to change their payment terms or stop doing business with them.
On top of this obvious benefit of invoicing and charging automation, you also get a couple of more than positively reflect on your cash flow, like:
- Reducing the number of errors in payments records
- Cutting the need for manual work
- More time for your team to perform other activities
- Improving customer satisfaction
When you’re trying to speed up the payment process and get what you’re owed faster, billing software can help you stay on top of all of your payments.
You’ll never fail to send an invoice or remind a customer of their unpaid balance or overdue amount, and almost none of the work has to be manual.
The payment process starts before you even sell anything to the customer, with the terms and conditions you’re making them sign.
The customer has to understand what’s expected of them, including when they are supposed to pay and what fees they will incur if they don’t pay on time.
If you use billing software, you can speed up invoicing and payments for all customers while also ensuring that everyone will get the invoice and all the necessary reminders and follow-up emails.
This way, the software will be doing most of the work on your behalf.
While you’re working on things that technology can’t take over, the software will seamlessly bill and charge your customers while reminding others of their unpaid invoices.