From setting clear terms to offering early-pay discounts, here’s how to keep cash flowing,
Businesses of any size are nearly certain to at some time face late-payment issues that can have crippling effects, and painting contractors, especially small to medium-sized shops, are no exception. In fact, research shows that 11 percent of all invoices written by small or medium-sized businesses are paid late, and 5 percent of their invoices are never paid at all and are written off as bad debt.
The impact can be devastating. After all, you might have a payroll to meet and materials to buy, not to mention a vehicle or two in need of maintenance, and perhaps an opportunity to grow your business with a new equipment purchase. And you likely don’t have the resources to spend otherwise productive time chasing down payment matters.
So how do you minimize the effect that late pays and no pays can have on cash flow, the lifeblood of your business?
While there are many different approaches, we’ve gathered the following tips, ideas, points, and counterpoints worthy of your consideration in addressing late or non-payment issues.
1. Set clear terms. Be sure your client knows your payment terms, and that you’ve identified them, whether it’s cash upon completion, net 15 days, or whatever you come up with. Such information can be addressed in pre-job discussions and be stipulated up front in your bid. Your invoice should ensure that your terms can’t be missed, whether it’s in color or large, bold type.
2. Incentivize early payment. Money motivates. A one-percent discount for payment-in-hand upon job completion, for example, might head off future payment issues and save you or your staff a few paperwork hassles. Conversely, a stated one-percent penalty for late payments beyond the scope of your terms can also help deliver an on-time payment.
3. The polite follow-up. So you haven’t received payment from a job, and payment is past due. Next step? Make sure you’ve done your part. Ensure the invoice was sent, hand-delivered, mailed or emailed, and received. Is your payment information, such as a mailing address, correct? If you can check all your boxes, friendly outreach is appropriate, but keep in mind that there could be all kinds of reasons for the late pay. Your email landed in a junk folder, for example, or your client is out-of-town, or dealing with a personal matter that has distracted them from taking care of business. Give them the benefit of the doubt. Remember that repeat business and referrals are a painting contractor’s most frequent generators of future business, so the best outcome is not only payment, but a relationship that results in future work. So your tone should be along the lines of, “Just checking in…”, or “We haven’t heard from you, so we’re following up to ensure that you’re pleased with the project we recently completed, and just want to make sure you’ve received our invoice.” Perhaps you offer new terms or a payment plan, if you learn the client has experienced a hardship of one sort or another. It’s not time for any firm “past due” remarks… yet.
4. Try a phone call. An old-fashioned phone call could be the prompt to motivate payment. A conversation might reveal the reason for the late status and could also be an opportunity to share with your customer how a late payment affects your business. In any case, a simple conversation could be all that’s needed to deliver a payment solution.
5. The firm follow-up. Let’s say the debt remains unpaid well beyond the terms you set forth. At this point, a client has breached the trust established by your agreement. You deserve acknowledgement, at the very least. We’re not getting legal… yet. But a communication could suggest your “disappointment that we still haven’t received payment,” or “a business such as ours relies on prompt payment, and we can’t work for you in the future if we can’t count on prompt payment.” Or, “We operated in good faith. Can we expect you to do so in turn?” At this point, you’ve given up hope of this customer offering repeat business — it’s about getting paid for what you’ve done.
6. Send a certified letter. Sending your client a certified letter requesting payment also delivers a message that you are serious in your collection efforts. It provides sound documentation of your efforts to collect and could demonstrate your willingness to pursue legal action should payment not be received.
7. Hiring a collection agency. Collection agencies are an effective means of debt recovery, but consider that your reward, even if the agency successfully extracts full payment from your customer, will be pennies on the dollar — collection agencies not only take a percentage of the recovered debt, they often charge a fee. But they are effective, and some payment is better than none.
8. Small claims court. These courts are designed for non-lawyers. “Small claims” mean different amounts in different states, but typically involve debts less than $15,000. Larger settlements would require legal representation in a real court — and the associated fees that such action would demand.
9. Or just write it off. Is it worth the time, struggle and aggravation to chase down a debt? Or is it time to just write it off as a lesson learned, and get back to the business of painting? Your call, of course, but just as in a poker game, there may be a time to step away from the table and cut your losses.
10. Make payment easy. Let’s close on a positive note about making timely payments as easy as possible for your clients. For starters, allow credit card payment. Your bank or credit card provider can get you set up. Yes, this will cost you a few bucks in fees, but it will be worth it if it helps a customer with their own cash flow concerns promptly settle their transaction with you. You also might consider offering payment plans and set up recurring invoices to ease the impact of a one-time payment for your customer.
Collecting overdue debt is the un-fun part about being a business owner. But having an effective strategy to deal with it can keep this issue from having a crippling effect on your business.