How to stop being your customers’ bank.
We’ve all heard of The Bank of Mum and Dad but one thing you shouldn’t have to be is The Bank of all your Customers.
Now you’re probably wondering what on earth I mean by that so here’s a couple of examples where unknowingly, you’re acting as a bank for your customer.
You can’t raise the invoice because the job isn’t finished
You are two thirds of the way through a large project, but your customer hasn’t sent you the information you need to complete the job. The longer it takes, the longer it will be before you can invoice them and get paid.
It’s not your fault but can you see how you are effectively being their bank? You’ve done a lot of work, so far at no cost and now you can’t complete it. Who’s out of pocket?
How long do you wait for the information you need? The customer is delaying you from getting paid because they’re not sending the information through.
What can you do about it? How can you tackle it? How can you get paid?
If the amount of work you have left to do is minimal, my suggestion, in this situation is to pick up the phone, give them a call and just let them know you’re still waiting for this information, how you’ve been waiting a while and it’s holding up the whole project. Tell them nicely you need the information within 14 days. Then, say you’ll need to invoice them on a certain date, for the entire project as if it is completed.
Why 30-day payment terms?
There is a myth in business that payment terms need to be 30 days – they don’t. You can set whatever payment terms you want but many people do it because they think businesses expect it.
Problem is, on average, customers pay invoices 15 days’ late so if your payment terms are 30-days, it will take 45 days to get paid. Whereas, if you give people 15-day payment terms, the majority of people will pay you in 30 days.
I also recommend you should review your contract for every new customer, product or service.
So why do you offer credit?
As a consumer, you wouldn’t do a weekly grocery shop and expect to have 30 days to pay for it so why as businesses do we feel we have to offer credit?
It’s all about your business needs. You could give seven days, you could ask for payment up front. Do what’s right for you.
If you tell your customers my terms are 50% up front the majority will not question it and since they want you to do the work, they’ll pay it.
Think about why you’re giving credit and if it’s right for you. If it’s not, change your terms.
How not to be you customers’ bank
Every time you issue an invoice with 30-day payments terms or begin work before you get any money, you are being your customer’s bank!
Stop being your customers’ bank