Getting customers to pay on time

Cashflow is king

Today I’ve got a little topic that came up with one of my customers which is really common. It is getting paid on time. This business is in the construction industry and it’s the start of February and guess what, they haven’t been paid from their builders and they’ve got a huge amount outstanding.

It’s a big issue for a lot of businesses I know.  What do you do about it because it’s a big problem?  It’s a cash flow problem for this business. These are the tips i’ve got, to try and help you out.  There’s no better solution than having payment upfront.

Now, that can come at the expense of not getting some work and I know in the construction industry, everyone’s used to 30-day terms so rocking that boat can cost you. But if you can get 50% upfront or the whole lot upfront, like you’re well ahead. That resolves all your issues.

Your Terms Of Trade

So, the next step is to negotiate terms, negotiate terms upfront. So be really clear, say ok, we want to give you the order. These are our terms, is it okay to pay by then? And when it’s coming up to Christmas, what does that mean in January? I mean, are you going away?  Is it going to be excuses that my staff are on holidays or you’re away on holidays therefore you can’t pay?

Try and get rid of those issues right up front, or preferably have standard terms that are quite short.  The other strategy is sometimes put in place or negotiate different terms for first-time customers.  I’ve had a lot of success with this.

We don’t have a good history with you so that’s why we ask for 50% upfront.  That’s a bit of a problem, or would you like to apply for an account with us but accounts usually take a month to sort out, and if you want to do background checks and see if they’ve got any outstanding debts with other people that’s fair.

I guess this one doesn’t apply for things like contractors installing your hot water service but if you’re a surveyor or a graphic designer you can just not deliver the final product. You’re going to give them a draft and have them accept it and say well, we only deliver on final payment.  If you’re delivering a video and things like that, or drawings if you’re an engineer for example. So that’s great for them but for others that go and install things on someone else’s site, that’s a problem, I know.  My last strategy is to provide discounts for paying early or penalties for late payments. The late payments one is a real slap over the wrist which I have to say I’ve never seen anyone be successful with.

Early payment discounts

Discounts for early payment, yes, you can do that a little bit but sometimes that hurts you too because they’re comparing you against other people.  The very important thing if they’re not paying is you have to follow up fast and follow up regularly and every time you do, it’s not just an email or an automatic thing, it’s phone calls, email, processed standing account, plus outline the next steps for your business.

Your business might have, a tiering process where it eventually ends up at a debt collector in a set amount of time.  You need to spell that out so that the process is really clear to them if they don’t deliver.

These are my tips for now. I hope they help you out and there’s  lots more out there but they’re the ones I find most appropriate for trade type of businesses or B to B businesses because at the end of the day, you want to do a good job, you want to get rewarded for it,  but you also don’t want to piss off your customer because you want that customer for life, you want them to come back to you again.

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Hugh Bowman is a specialist in business coaching for trade businesses and is a former engineer and technical expert. He has lived and worked in many parts of regional Victoria coaching tradie business owners.

Ph: 0409 402 474