How to Get Your Customers to Pay You First

One of the hardest parts of being a small business owner is managing your cash flow. As a freelance worker or a small business owner you may feel like you lack the legal clout and the power to pursue people who do not pay you on time, but this is not the case.

If you want your customers to pay you on time, then you need to be systematic about your invoicing, and pursue people who do not pay you on time. You can use online invoicing systems to manage your invoices and keep track of payment schedules. Agree to payment terms with each customer when you start to work with them. When you send invoices to people, print your payment terms on them. Send out a reminder a few days before the payment is due, and then be systematic about chasing payments if they are late. You should consider adding interest or late payment charges to invoices if someone does not pay on time. If the customer refuses to pay you, then you should take them to court to get the money.

If you offer subscription based services, do not hesitate to cut off the subscription or withold services until they pay you. Between the threat of termination of services, and charging penalty fees, you will have strong incentives for people to pay you before they pay other companies. In the current economic climate, this is important.

Another way to encourage prompt payment is to offer discounts for people who pay in advance. For example, you could offer a 10% discount for paying three months in advance, compared to the cost for subscribing month-to-month. If you offer services on credit, then give a discount for early settlement. In this regard, a carrot is a much better incentive than a stick, and it will generate goodwill for your business.

A lack of cash flow can cripple a business. Even if your annual profit and loss sheet shows that you are making money, the promise of money “at some point” is not going to save your business today. It is important that you enforce prompt payment schedules. If you set the precedent for prompt payment early on this will ensure that your customers understand that they must make it a priority to pay you on time. As they say, “the squeaky wheel gets oiled”.