Collecting Customer Invoices While Maintaining Customer Relationships

Image of a stack of papers on a desk with computers and a window in the background.

Customer relationships and cash flow are both crucial to small businesses, so it can sometimes feel like a no-win situation if you’re sitting on a stack of unpaid invoices.

On one hand, 54 percent of businesses say it takes too long to collect payments, and 45 percent say clients don’t pay on time, per SmallBizTrends. Furthermore, the average small business is owed $84,000, according to Entrepreneur, and 81 percent are 30 days past due. It’s no wonder cash flow management plays a role in 82 percent of small business failures.

On the other hand, the customer’s experience in terms of billing can make or break their overall relationship with your company at a time when 67 percent of consumers can be identified as “serial switchers,” according to Forbes. These are customers who are willing to switch providers the instant they don’t feel appreciated, find company reps unhelpful, or experience other service-related issues. Conversely, delivering great service and maintaining strong customer relationships can help you grow your business considerably.

So, what can small-business owners do when faced with the “unwinnable” situation of choosing between maintaining a client relationship and getting an invoice paid? Simply put: don’t. They’re not mutually exclusive. On this page, we’ll walk you through how to keep your clients happy and receivables current. Keep reading to find out how to collect payments from your customer base without compromising your customer experience or retention.

What is Client Relationship Management, and Why is it Important?

Client relationship management, sometimes shortened to CRM, is a broad term that covers the guidelines, practices, and principles an organization follows in relation to its customers. You may also hear CRM used to denote specialized software that helps organizations manage their customer relationships effectively. It’s so huge the industry is slated to reach nearly $129 billion in the next couple of years, per Fortune Business Insights. But what makes it so important?

  • Customer Loyalty: Three of the top five reasons customers are loyal to small businesses have to do with great service, according to Salesforce
  • Reputation: Happy customers leave positive reviews online, and 87 percent of consumers read them when choosing a local business per BrightLocal.
  • Sales: Satisfied customers spend more than double what unhappy customers do per BizJournals.
  • Retention: Happy customers stick around. Just a five percent increase in retention boosts profits by 25 to 35 percent, according to HBR.

How to Get Paid and Maintain Customer Relationships

Clearly, maintaining positive customer relationships is essential to your business, and your payment process is a major part of that. Now, let’s take a look at ways to collect money, what you can do to keep your clients paying in a timely manner, and what you can do about it when they don’t pay (without diminishing their overall experience).

Establish Clear Expectations in the Agreement

If you want faster payments, start by educating clients at the time of purchase—before any work is done or goods are delivered.

  • Clear Pricing: Ensure your prices and payment terms are clearly stated in key places like your website and estimates.
  • No Hidden Fees: Don’t tack on additional costs that the client isn’t expecting. If you’re unsure of the final cost (perhaps you charge for mileage or by the hour), give the client the higher estimate. They’ll be thrilled if it comes out lower.
  • Billing Frequency: Communicate when and how often you’ll send invoices so the client can prepare to make the payment.
  • Due Date: Whether you’re using net 30 payment terms, expecting immediate payment, or have an alternate term, ensure it’s communicated verbally and on paper.
  • Timeline for Delivery: Ensure the client knows exactly when you’ll deliver goods or services to avoid any misunderstandings.
  • Communication: Let the client know how they can get in touch with you if they need assistance as well as when and how you plan to connect with them.
  • Dispute Resolution: Outline your policies for handling billing disputes.
  • Non-Payment: and non-payment. Be sure to give the client a simple path to follow and outline any steps you might take, including working with a debt collection agency if applicable.

Request an Upfront Payment

It’s common or somewhat common to request payment in advance in some industries. If you’re worried that making a request for advance payment will be received as a sign of distrust, consider raising your standard pricing by ten to 20 percent and then offering the equivalent discount when your client pays in advance. This simple shift changes perspective, and clients will typically be eager to pay upfront and happy you’re offering a discount.

Implement a Retainer-Based Model

If total payment upfront is not standard for your industry, you may want to look into requiring a retainer or deposit. Not only will this help weed out anyone who isn’t serious about retaining and paying for your services, but it will also catch any kinks in the invoicing and payment process to streamline payments later.

Deliver the Invoice on Time

Most business owners plan to send invoices on a specific day, such as the first business day of the month or the last Friday of the month. However, even the best-laid plans can go astray when things get busy, and invoices may be sent days or weeks after they’re supposed to go out. Not only does this add to the total amount of time it takes to get paid, but it makes your billing cycle unpredictable which reduces the likelihood that clients will pay promptly. After all, if you don’t see your payment as being important enough to bill for, why would they see it as important either?

If you have a standard schedule such as this, block out the time and stick to it. For even faster payments, consider billing immediately after your work is complete or goods are delivered.

Invoice More Often

Invoicing is rarely a one-and-done endeavor. People unintentionally miss deadlines. Sometimes they’ll prioritize another bill over yours, or they’ll find themselves unable to pay when the invoice comes due. Create an invoice cycle with multiple touchpoints across a variety of channels, from email through text and traditional paper statements.

  • Initial Invoice: Send the initial notice as soon as possible. Just as you may offer a pre-payment discount, you may want to consider offering an early payment discount.
  • Reminders Before the Due Date: Give clients another reminder as the deadline draws near. Some businesses do this a week ahead of time, a day before payment is due, or both. Ensure any late fees they may accrue are highlighted to nudge them to pay before the deadline hits.
  • Reminders After: A late payment notice should go out immediately after the invoice is marked overdue. The first should be polite and make the assumption the client has overlooked the invoice, but you’ll want to become firmer with later notices and outline your debt collection practices if the invoice remains unpaid.

Provide a Payment Plan

When an invoice remains unpaid, it’s usually because the client overlooked it or faced some kind of obstacle in payment. This is a great opportunity to let your customer service skills shine. If you are struggling with collecting unpaid invoices, talk to your customer and find out why the invoice has not been paid yet, and work together to find a mutually beneficial solution. For example, maybe they need a payment plan to get caught back up. If this is the case, you may want to find out if it’s easier for them to make payments in the future as well. If you’re proactive, you can work to get them on a plan that gets them paying some or all of the balance ahead of time.

What if Clients Won’t Pay?

Nobody wants to wind up in small claims court. Lawyers are expensive, and the whole process takes valuable time away from your and your client’s business. Unless a client specifically tells you that they have no intention of paying, continue following up with overdue payment reminders until you’re ready for outside help.

When Do You Require Help from Outside?

If repeated attempts to collect money owed by customers don’t work or your client says they’re not going to pay, then it’s time to get some outside help.

  • Collections: Generally speaking, collections agencies won’t take on a file until payment is 90 days overdue, and they can take half of the invoice’s value or more as payment. For this reason, using a collections agency is usually considered a last resort.
  • Factoring: Although factoring cannot get you paid for an invoice that’s already overdue, as it’s geared toward providing payment immediately after the invoice is sent, it can accelerate your payments in general. In this sense, it can help bridge cash flow gaps left by slow-paying clients and allow you to offer extended payment terms that make it easier for your clients to pay without throttling your cash flow.

Get Help from a Leading Factoring Company

Invoice factoring is an ideal solution for many small businesses because it eliminates the wait for payments altogether. You simply submit the invoice to the client and send documentation to the factoring company. Then, the factoring company pays you and waits for payment from the client. This way, you can focus purely on maintaining the customer relationship and still get cash from your invoices right away. If it sounds like factoring may be the solution your business is looking for, contact Viva for a complimentary rate quote.

Greg DiDonna

About Greg DiDonna

Greg DiDonna, President and Partner of Viva Capital, is responsible for strategic planning and implementation of customer service, and business growth. Three-time award winner of Banker of the Year by Southwestern Business Development Finance Corporation

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