A couple of months ago, I made my first overseas trek since 2017 – not for vacation – but to meet with the rest of the Fritz Financial Solutions team of accountants in the Philippines. It was important to me to show these women the time and attention needed to...
Show Me the Money: Best Collection Practices
If you are like most small business owners, chasing after the money is one of your least favorite financial tasks. And I get it. You are not a bounty hunter or a detective. Your time has value and you probably did not include the cost of time spent chasing payments in your scope for client work. It can be hard not to take it personally. It can be uncomfortable asking people to honor their commitment to pay for services provided. Moreover, you are often fighting a losing battle with technology. Who hasn’t gotten the “oops, I lost your email” response?
I am going to walk you through my own experience and the processes I’ve put in place to address the pain points of collections. I also have some recommendations to put more of this missing money in your pocket and get your business billing back on track!
Make it easy to pay.
When I started My Small Business Pro, I created very strict invoicing terms that were communicated clearly verbally and within our client agreements. Bills were sent on the 15th or the last day of the month. Delivery of the invoice went like clockwork. Payment terms were clearly stated in the contract and on the invoice as Net 15, meaning clients have 15 days to pay. And then everyone conformed perfectly to the terms of their written engagement agreements. Right? Of course not. I started to send reminder emails. Texts and calls became a part of my routine.
Over subsequent years I envisioned and implemented a much-evolved process that meets the needs of today’s client more effectively. I learned that my clients legitimately lose emails; I don’t want to be another inbox item vying for their attention or their time. Today, my first MSBP billing question to new clients is simple: “Would you like to sign up for autopay?”
We evaluated payment options for clients and determined that accepting credit card payments is not the best solution for our business. ACH payments are the simplest and lowest cost option of online payment for us to accept. An ACH payment is a type of electronic bank-to-bank payment which takes one business day from the time the transaction is processed to the time it’s in your account. We developed a direct payment form that authorizes MSBP to collect our clients’ fees and set up a recurring sales receipt that automatically provides the transaction record to our clients who have ongoing services. With proper authorizations, we are able to initiate the transaction and send the sales receipt automatically. In only a few short months, we have transitioned more than 50% of our clients to this program. Not only have we removed the friction of the payment process for our clients, but the money gets into our account a LOT faster.
While our process may not be the right fit for your business, there are other options which may work for you:
- Add late fees. One of our clients adds a 5% late fee to invoices if payment is even 1 day late.
- Set up automatic reminders – especially for clients who tend to run late. You may need to be a bit more visible to get their attention.
- Activate an ACH payment option so that invoices can be paid online. This saves everyone involved a considerable amount of time! You can even add a fee for clients who do not utilize ACH payments.
- Accept credit cards – while these can get pricey, sometimes they are worth the time and hassle they save you. We can help you find the processor that makes the most sense for your business. Options include PayPal, Stripe, Shopify, QuickBooks Payments and Square Payments.
- Enable Zelle payments – this is a person-to-person payment technology by which funds hit your bank account almost immediately. Many businesses have started utilizing this method of payment. Careful here! If you are off on the recipient’s email address or phone number by only a single character, you can lose your money. (You can read more about Electronic Funds Transfer here.)
One final suggestion to get you moving: don’t be afraid to call your clients. Role play the conversation with your bookkeeper. I recently advised a client to use a very frank line: “Your account is several months past due. I’m afraid we won’t be able to render any further services until it is current.” As you continue the conversation with your delinquent payer, focus on providing solutions. Use some of the suggestions I noted above. Introduce the new online payment method, an automatic billing feature or offer to collect the fund directly from their bank account.
A lot of people don’t prioritize collections. If this feels like you, it’s time to start asking yourself why. Cash flow is impacted when we are not diligent in collections. Your behavior as a business owner impacts your bottom line. Value your products or services as much as you want everyone else to value them!
There are situations where business owners would benefit from having additional guidance in this area. Here at My Small Business Pro, we set up and guide payment processing. We have also led collections efforts on behalf of our clients, making the calls to make sure they get paid. We can assess your existing processes and create the strategies you need to tackle this crucial area of business finance. Let us help you find the path of least resistance to get paid! We can advise you on what collections practices are best for your business. Reach out to us at Info@MySmallBusinessPro.com
What solution can Fritz Financial find for you?
Schedule a meeting with Daliah Fritz