08 November 2009

Get paid by your customer: Top 5 tips

You get a call from someone wanting the services you provide, you listen carefully and prepare a quote for the job, you get the job beating all your competitors (yaaayy!!), you fix a date for the job and shop around for best materials, you accomodate the customer's changing and additional requirements that come up as he understands the product better, you finish the job a few days later and are happy about having provided a great service, you come back and prepare an invoice based on the earlier quote and added tasks, you send it in the mail, and... nothing!! You call the customer another few days later to ask for payment and...
"Oh my God!! That is definitely not what I expected"
"I nearly fell off the chair looking at the amount"
"How did it become this expensive??!!"
"I am really struggling for cash right now, can we negotiate this?"
"Can I pay in installments?"
"Can I pay next month?"

Have you ever faced difficulties getting payments from customers? Have you found yourself struggling to pay your suppliers since you simply dont get paid by your customers on time? Do you find yourself spending a lot of time trying to follow up with slow or non-paying customers, calling them, sending reminders and sometimes totally spoiling the good relationship you have so far developed with them? Here are our top tips to help you avoid this nightmare:

1. Set expectations right

Start even before your relationship starts. What are your call-out charges? Do you charge for a written quote? What is your definition of a quote, is this the same as your customers definition.  Make sure you make your initial charging policy clear the first time a prospective customer calls you. Do not assume that it is simple "common sense" that a particular service is or is not free. Just be honest, transparent and perfectly clear. Do not let anyone accuse you of "hidden charges". 

2. Provide a written estimate before you start

It is tempting to immediately start the work the customer asked for. But STOP! Always provide your estimated cost to complete the works. Think of what obstacles you might find on the way, and put in provisions for them. At the same time put in your terms for payment. Do you want a deposit? If it is a large job, do you want milestone payments along the way? How many days after the job do you want final payment by? Do you give a discount for early payment? What happens if the customer does not pay? Put it all down there, and make this your standard quoting practice.

Tip: Much of your spending on a job will be at the start, to buy materials required. Remember that cash flow is king in the business, and ask the customer to pay enough payment upfront to cover this. It also helps to make the final payment relatively small, so that if unfortunately you do have to chase up later, you are chasing up for a smaller amount.

3. Expect the unexpected

This is one of the greatest truths of any business. The customer wants something that you quote for, but as he sees his thoughts taking shape, he might think better of something, change one thing, add many more. And of course, with the focus on customer service that you have you will do that. But keep note of every change and addition.

Also take note of unexpected difficulties or setbacks at the job. We have had underground cables stolen overnight, hit illegal wiring that absolutely had to be fixed, found customers who had bought large appliances such as a spa without thinking of telling their electrician, had another tradesperson at a new house cut through our wires and.. you get the picture. Some of them we have absorbed into our own cost of doing business, some we have not. But what is important is to note every single one of them, and make sure the customer knows how that affects both schedule and cost. Inform the customer immediately, if possible. And better still, send him a daily running statement of work completed along with cost. This makes sure there are no surprises at the end of the job.

4. Send invoices promptly

Do not wait for the end of the week or month to send out invoices. Do this as soon as the job is done. If you have been sending running statements of work and have been in touch with the customer at all times, he will already be expecting this and will also have an idea of the total cost.

5. Keep track and follow up

Have a system in place that tells you of which customers owe you money. We use MYOB for our accounting and tracking and find it extremely easy-to-use and user-friendly. Even if you are not currently using an accounting software, track payments on Excel. If you have not received payment, you can call the customer the day before the due date to confirm that he has received your invoice. If you are not paid by the due date, do not be afraid to follow up, both on the phone and through written reminders. Sometimes customers do simply forget to pay in time, and a simple reminder is all it takes. If not follow up at least weekly, and try to get a promised date to get the payment by. Be polite, but firm!

Are the 5 tips enough?

Following up, calling, sending repeated overdue reminders. All these do eat up a lot of your time and energy. Sometimes, you will come across some customers who do not pay up despite all these measures. Know when to give up and accept that you are simply not going to get 100% payment from these people. There are still some things you CAN do after this stage - you can call in a debt collection  agency (they are expensive, and remember to read their terms carefully too, do not pay fees before they collect), you can try "factoring ", you can even try negotiating payments in installments or at least some percentage of the total. You can also insure the accounts receivable  from the very start if you just want to sleep in peace. Hopefully, if you have followed the 5 tips carefully, you will rarely reach this stage of non-payment