If you’re jumping in midstream, the series begins in Part 1 with the complete list. Part 2 can be found here.
3) Set the standard up front and be firm
It’s human nature to try to get away with whatever we can. Those of you who are raising, or have raised, young children know this from experience. You’re being naïve if you think everyone leaves the child behind when they get older.
If you want your customers to pay you on-time, every time, you have to deliver a consistent message: “We’ve kept up our end of the bargain and so should you.”
And when I say consistent, I mean 100%. Like the child attempting to wear down the parent with a never-ending series of Can I’s, your customers will constantly test you to see if you’re serious. Let them slide 5 or 10 days this time and next time it will be 10 or 15 days. Before you know it, the customer with 30-day terms is paying you in 60 days. Do this with enough customers and your Accounts Receivable get out of hand.
I’m convinced that lack of firmness on A/R terms comes from a place of weakness. We’re afraid that somehow what we provide to our customers isn’t quite good enough. And if we push them on payment, they’ll go somewhere else. While this may be the case in a small minority of situations, I doubt that your customers decided to do business with you because they thought they wouldn’t have to pay you on time. Operate under the assumption that they buy from you because of price, or customer service, or quality, or anything other than you’re an easy mark. Your wallet, and your blood pressure, will thank you.
4) Use late charges and enforce them
Remember that I said in Item #1 that Accounts Receivable is your money. You’re just letting the customer hold it for awhile. If they hold it for longer than you’ve agreed to, it’s only appropriate that they pay you for the privilege.
Assessing late charges accomplishes two goals. It not only incentivizes your customers to pay you on time, but it also compensates you in case they don’t. You should make sure of the legalities in your jurisdiction, but I recommend at least 1.5% per month, or part of a month, that payments are late.
This is another case where sticking to your guns is important. Make your policy that a payment has to be received, not mailed, by the due date. And, in case a check doesn’t clear act as if you never received it in the first place.