Four ways to chase payments without losing relationships
At a glance
Here’s a snapshot of advice from our interviewees:
- Setting expectations and being consistent gives debtors a chance to prepare and plan. No one likes a surprise invoice or an unexpected change in payment terms.
- Don’t be quick to point the finger – blame is rarely an effective strategy (and sometimes mistaken).
- Threats might work in the short-term to get a bill paid but will damage a long-term relationship.
- If there’s ever been a time for some understanding, it’s now.
As Andy Ghozali, Senior Consultant at Kreatif Ninja says, “cash flow is an integral part of small business survival”.
And with EOFY looming , many small businesses are at crunch time to collect outstanding balances before the end of the month.
But with so many doing it tough over the past year, small businesses owners are also focusing more on that other integral part of small business survival: relationships.
When we’ve spoken to small businesses owners over these past twelve months, one priority has come up again and again – nurturing and protecting relationships with clients, vendors and suppliers. It’s never been more important.
So how can small business owners find a balance between the hard-nosed business of getting bills paid and the kind of understanding approach that could save relationships in the long-term to ultimately foster business growth?
It might not sound like the out-of-the-box, magic bullet solution you’re looking for, but this tried and tested approach can be very effective.
Vanessa Davey of People Realm says a clear, consistent plan goes a long way to keeping business running smoothly.
“Create a plan of how you’re going to manage your debtors, communicate the plan with everyone who needs to know and then stick to it,” she says. “Let clients know the process of payments and set clear expectations up front.”
That way, no one gets any unexpected surprises and communication channels stay open.
When clients know where they stand, they too can be better prepared and plan for what’s coming up – paying your invoice. Having everyone on the same page communicates a valuable sense of everyone being in it together.
Keep it civilised
“Don’t jump to conclusions,” says Andy Ghozali. “First, make sure you followed correct procedures at your end – did you send the right invoice? Were the payment terms clear? Did it get sent to the right person?”
He also recommends giving clients the benefit of the doubt, even if you did everything right at your end.
“Sometimes invoices slip through the cracks – it happens to everyone,” says Andy. “A client might be out of town or dealing with an emergency. Before getting angry or making threats, send a polite follow up. More often than not, a brief check-in will get the invoice paid.”
Less stick, more carrot
Late fees are a common strategy for ensuring bills are paid on time and a penalty can be a compelling motivation to pay up. But, given the challenges faced by small business over the past year, penalties might end up causing more problems with payments, not less, by making those payments less achievable.
Andy says in his experience, the promise of a reward is more compelling than the threat of a penalty – a discount for early payment is often very effective.
“With even a one or two per cent discount on the total invoice amount, we commonly find invoices paid in full within seven days.”
The trick is figuring out how much you can afford to discount for the reward of prompt payments and good relations.
Try a little tenderness
Automated reminders are an efficient part of most invoicing systems. But sometimes nothing beats a personalised check-in or an opportunity for genuine connection.
“I’ve custom written my auto reminders to highlight my small business nature,” explains leadership coach Tui Fleming. “I drop in a little ‘truthbomb’ that relates to my practice which hopefully makes them stop, think – and pay! As my practice is in authentic leadership, it’s important to me that my follow up is genuine and gentle.”
‘Thank you for your business,’ reads one of Tui’s customised reminders. ‘As a small NZ business, we’re really grateful for payment on time (and did you know gratitude breeds resilience and wellbeing?).’
Andy is also a fan of the softly-softly approach.
‘I hope you, your loved ones and your business are all getting through in this stressful period,’ reads Andy’s follow-up message. ‘I can imagine that many of your routines are still a bit up in the air, so just wanted to give you a gentle reminder that we have yet to receive payment from you for the attached invoice. I’ve attached a copy here in case it’s been misplaced. I would be really grateful if you could arrange this payment as soon as you are able.’
Burning bridges over late payments is over. Now is the time to build them, reinforce them and consider the long road ahead.
If you still have no luck in getting invoice payments over the line before EOFY, talk to one of our small business lending specialists about how a Prospa Small Business Loan could help to ease cash flow concerns.
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