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More and more households and businesses are facing payment issues or expect to encounter them in the near future. This not only affects their spending patterns but also how they manage their payments.
How can your organisation ensure timely invoice payments while optimising cash flow? While you understand your customers’ financial situations, you also want your invoice to take priority. In this article, we share seven tips to increase the likelihood of timely payment.
1. Ensuring value: key to optimising cash flow
Perceived value may not seem directly related to payments, but it plays a crucial role. Especially when customers have less disposable income, they scrutinise their spending more critically. Every payment is weighed: is this really necessary, or are there cheaper alternatives? While perceived value is partly based on feelings, you can definitely influence it as an organisation. Clearly explain your offering and compare it to competitors’ offerings. Confirm to your customer that by choosing your product or service, they are indeed making ‘the best choice’.
Additionally, check whether your customer is making optimal use of the product or service. For instance, if a subscription isn’t fully utilised, inform your customer about a cheaper alternative. While this might generate less revenue in the short term, it increases the chances that your customer will continue to pay the (lower) invoice in the long run. This is a matter of balancing short- and long-term perspectives.
2. Request upfront payment for a product or service
Asking for payment in advance is the safest way to ensure your organisation does not face financial risk. If your customer doesn’t pay, you simply don’t deliver. However, this approach doesn’t work for many products and services, especially in situations where the customer pays only after use, as costs cannot be determined upfront. You can’t just send an invoice before the service is delivered.
To mitigate some of the financial risk, consider various solutions. When entering into an agreement, you could charge administrative fees. This serves as a type of guarantee that helps cover the initial period of the contract if your customer defaults on their monthly payment obligations. Another option is to request a deposit, which you refund at the end of the contract. Alternatively, you could invoice subscription costs in advance and combine this with the usage costs from the previous period.
Explore whether you can implement such mechanisms within your product or service offerings to limit payment risks.
3. Clear invoices and reminders: the foundation of effective debtors management
Effective debtors management begins as soon as the invoice reaches your customer. Clear communication is essential in this regard. Ensure that your invoice clearly states what your customer is paying for and is 100% accurate. This prevents costly calls to customer service, customer negligence, non-payment, or payment disputes in the case of direct debits.
The same applies to the reminders you send. Are these clear, easy to understand, and do they reflect the correct situation? This can be challenging, as reminders often represent a snapshot of outstanding amounts. An online portal can be a valuable tool, especially if linked to a central administration. This allows customers to check the current status of their outstanding balance and, if possible, pay invoices online.
Critically assess your invoices and reminders, asking yourself: is it clear why this amount needs to be paid? Clear, error-free invoices and reminders are crucial to preventing payment issues and essential for optimising cash flow.
4. Direct debit: smart and timely
Many businesses use direct debits as a payment method, yet some organisations still leave (manual) payments to their customers. The advantage of direct debits is that they offer more control over the payment process, reducing the risk of customers forgetting payments. Consider adopting this method if you haven’t already — provided your product or service allows it, of course.
If you already use direct debit, also pay attention to the timing of the collections. Collecting shortly after salary payments, for example, around the 25th of the month, is often more effective than just beforehand. Alternatively, consider allowing your customers to choose when a direct debit can be executed. The right timing can significantly increase the likelihood of successful payments.
5. Various online payment methods
In addition to direct debit, online payment methods are an excellent way to enable customers to pay easily and quickly. Consider options like iDEAL or PayPal. You can also add a payment link to invoices or reminders, simplifying the payment process for your customer by pre-filling the necessary information. If you send paper invoices, including a QR code has the same effect; the QR code effectively acts as the payment link, making it very convenient! 😊
6. Deferrals and payment plans: a tool or a temporary solution?
There are situations where a customer cannot pay their invoice on time. In such cases, deferred payment or a payment plan may provide a solution, allowing the payment to be postponed to a later date or spread over a longer period.
While this flexibility can assist your customer, it may also be a case of postponing the inevitable. It’s crucial to carefully consider whether to offer this option and how to manage the associated process. Think through how you will handle payment plans to prevent extending the issue and jeopardising your cash flow, ensuring you are optimising cash flow throughout the process.
7. Maintain communication: the importance of personal contact
If a customer fails to pay their invoice within the agreed timeframe or if a direct debit doesn’t succeed immediately, it’s essential to keep the lines of communication open. For example, send (automated) reminders to draw attention to the outstanding invoice.
If payment remains outstanding after several reminders, follow up with a phone call. Experience shows that customers who are approached personally are more likely to pay than those who only receive written communication.
Utilising customer profiles can also be effective. Segmenting customers based on their payment behaviour allows you to tailor your communication when sending reminders. This not only enhances customer satisfaction but also increases the chances that customers will pay, contributing to healthier cash flow and more efficient debtors management.
How to Put These Tips into Practice?
Implementing some of these tips can be relatively straightforward, especially when it comes to improving communication or adjusting timing. Other tips may require expanding or adapting the systems that support your business processes.
Fortunately, various providers can assist with implementing some of these tips. However, there is a risk of losing central oversight. Supporting multiple processes from various systems can lead to integration issues, discrepancies, and errors. For example, you might initiate a direct debit for an invoice through System A while receiving an online payment through System B. Or worse: you may fail to execute or make both available. Therefore, it is crucial to always maintain a complete overview.
