Do You Have a Payment Policy in Place?

If you asked yourself, “What’s a payment policy?” then you definitely need to keep reading. But, even if you have a policy in place for getting paid, the beginning of the year is a good time to examine everything and improve where possible.

What Is A Payment Policy?

A payment policy is simply the policy you have for getting paid. Whether you’re a B2B business or sell through Amazon, you need a procedure for getting paid the right amount at the right time in order to manage your cash flow, critical to keeping your doors open, and limit risk.

How Often Should I Invoice Clients?

A client can’t pay what hasn’t been invoiced which can be challenging when you’re busy. To help, find a system or process that will allow you to quickly create and send invoices as work is completed or at a dedicated time of the month. It’s easier to schedule invoicing but accounting software can also automate and simplify the process of invoicing clients.

What Should My Payment Terms Be?

You’re a small business, not a bank. You need to be paid on invoices quickly or you’ll run out of cash and close shop. It’s that simple! Depending on the nature of your business, you may consider requiring a certain percentage of a project’s projected costs prior to starting work. This is a good strategy when projects may take months to complete.

You may also consider variable payment terms depending on your relationship with clients. New clients, for example, may require invoices that are due upon receipt while established clients enjoy payment terms of net 30.

How Do I Collect Payments?

While you can’t control what your clients do, you can incentivize their behavior. First, make paying you as simple as possible – cash, check, bank transfer. Second, consider offering discounts for paying early and penalties for paying invoices late. Third, automate late payment notifications when payment is 10 days late. And finally, when you have to call on a past due invoice, be polite but be firm and make sure you have a commitment from your client for the next step for getting paid before you hang up.

Creating a payment policy will add discipline to your small business and when communicated with your clients and customers, you’ll find it easier to collect and keep your doors open.

your clients and customers, you’ll find it easier to collect and keep your doors open.

By Andrew Patricio

December 07, 2016