Startup Business Basics : Getting Paid
Here’s a common problem that startup businesses sometimes don’t anticipate and are often unprepared to face: slow-pay or no-pay clients. Late or unpaid invoices are a fact of life for any business, big or small, that doesn’t collect full payment in advance.
If customers are getting slower and slower at paying, and your overdue notices and e-mails aren’t getting much action, it could become a big problem for your startup company cash flow.
But there’s much a small business can do to head off trouble at the pass, or to speed up payments.
The key is to create a clear cash collections process at your startup business. It starts by making smart credit-granting decisions. “But I don’t grant credit,” is a common protest from startup entrepreneurs. Yet anytime you deliver a product or service without first collecting payment you are, in fact, granting credit. If you are ever at risk of not being paid, you are – like it or not – a creditor.
Here are 8 ways for your startup business to improve cash collections:
- Become a better biller. The appearance of your invoice is a crucial first step toward speedier collections. The invoice should be clear and simple. It should state explicitly, in itemized fashion, what it is for. Fancy colors or cute designs detract from the purpose – getting paid.
- Look professional. Send a real invoice, not stationery with “amount due” typed in. Make it clear what business name the check should be made out to and where it should be sent. Include a phone number for questions. Missing or confusing information offers an excuse for delay.
- Move quickly. Send invoices the moment money is due. If payment isn’t received by the stated deadline (30 days, for example), send a reminder on day 31, not the next cycle. If you undertake a long-term project, consider progress billings.
- Make smart credit-granting decisions. To save your startup business from bad debts, check out major customers ahead of time. Request credit references from the customer, make inquiries yourself, buy commercial reports (such as those from D&B), or combine all three.
- Write dynamic dunning letters. The better your collection letter, the faster the money will flow. Make it a customized, personal letter, not a lifeless form letter. Remind the debtor of his or her original promise to pay. And ask for immediate and full payment (should be obvious, but often left out).
- Call sooner, not later. Most businesses wait too long to call. But collection experts say a phone call is 10 times more effective than writing or e-mailing.
- Offer carrots for quick payment. A discount between 1% and 3% for fast payment – within 7-15 days – works well. Also encourage customers to pay by credit card.
- Summon the collection cavalry while there’s still time. Each passing month dramatically reduces your chances of getting paid. Consider bringing in a collection agency after 90 days.
Our Bottom Line:
Collecting money is at the core of every business, including your startup business. It’s critical to have a clear and professional process for billing customers and keeping up with your receivables. To keep your business out of a cash flow crunch, have a process in place to collect!
© 2005 BizBest Media Corp.