According to a recent study by the U.S. Bank, not getting paid fast enough accounts for 82% of small business failures. It makes sense—no money, no business.
Fortunately, there are plenty of ways you can alleviate cash flow issues for your home services business. Deciding which of these you want to include in your business plan will be a key piece of how you grow as a business. For example, you can reduce costs, raise prices, and apply for a business loan. You can also learn how to get paid by customers faster.
In this article, we share seven tips for faster payments, which will help you eliminate your cash flow problems, reduce your stress levels, and build a more profitable company.
7 Tips For Faster Payments
If you can speed up a customer’s payment, you’ll reduce cash flow issues for your company and give it the best chance of succeeding. Getting paid faster should be a big part of how you run your business. Here are seven tips to help:
1. Ask For a Deposit
One of the best ways to minimize cash flow issues is to get paid in advance.
Ask customers for a deposit before you do any work for them. This will help you cover the costs of doing business—purchasing materials, paying subcontractors, driving to job sites, etc—and make sure that, at the very least, you don’t lose money on a job.
Remember, you are NOT your customers’ bank and it’s not your job to finance their orders. There’s no reason why they can’t pay a percentage of your fee upfront.
2. Send Bills Promptly
The faster you invoice your customers, the faster you’ll get paid by them. So don’t waste time!
The trick is to find a billing process that works for your business and to commit to it. For example, some home service providers invoice their customers immediately after completing a job. Others do all of their invoicing on a specific day of the week or month.
We prefer the first option because it’s less risky…
If you invoice your customers on the 28th of every month, for instance, but one of your customers pays all their bills on the 24th, you’ll have to wait a few weeks or more to get paid.
Again, the key is to find an invoicing process that works for you. Just know that the sooner you bill your customers, the sooner they’ll pay you, resulting in fewer cash flow issues.
3. Shorten Payment Terms
Want to get paid faster? Give your customers less time to pay.
Research shows that 58% of “Net 7” invoices are paid within seven days, while only 40% of “Net 30” invoices are paid within the same timeframe. What do these numbers tell us? That a majority of your customers don’t mind paying quickly, you just have to ask them to.
Your payment terms should be established and agreed upon at the beginning of every project. That way everyone is on the same page from the get-go.
Fun Fact: According to the same study we referenced above, invoices that say “Thank You” in the payment terms are paid in 14 days or less nearly 58% of the time. Sometimes just being a decent human being can help you get paid faster, too. Who knew?
4. Ditch Paper Invoices
Paper invoices slow down everything. The good news is, you don’t have to use them! Between online payments and mobile payments, you can invoice your customers digitally and speed up the process. Let’s talk about each of these in greater detail:
- Online Payments: Tools like Quickbooks and Freshbooks will allow you to create, send, and manage digital invoices. This means that you can email invoices to your customers, rather than sending them through the mail, which will speed up payment times. Digital invoices are also easier for customers to pay because they don’t have to mail checks. If your payment process is simple, your customers will pay faster.
- Mobile Payments: If you’re a plumber, HVAC tech, or some other kind of home services professional, you spend a lot of time in and around your customers’ homes. This means that you probably interface with your customers before and after jobs. So why not accept mobile payments via Square? This popular service will turn your phone into a credit card reader and will allow you to accept payment immediately after you finish a job. It doesn’t get any faster than that!
Paper invoices take longer for you to send and longer for your customers to pay. Move your business away from them and embrace online and mobile payment.
5. Incentivize Early Payments
Another way to get paid faster is to incentive early payments. Offer your customers a percentage discount or upgrade their next service for free if they pay within a certain time frame. (10 days is pretty common, though you can set your own terms.)
People LOVE incentives—especially if they save them money. So think of something you know your customers will want and then offer it to them in exchange for timely payment.
You can also go the other way and penalize customers for paying late.
Trust us, your customers will make sure they pay on time if they know that they’ll be charged an extra 20% (or whatever you decide is fair) for late payment. Just make sure to check your state’s usury laws before implementing this policy.
6. Automate Your Follow-Ups
If you implement the five tips above, your invoices will have clear payment terms and be issued through an online payment tool like Quickbooks. This is great news because it makes tip number six, automate your follow-ups, really easy.
Here’s the truth: it doesn’t matter what you do, some of your customers will pay late. Set your online payment tool to automatically send reminder emails when this happens.
There’s a good chance that your customer isn’t trying to rip you off. Your invoice might have just been lost in the shuffle. A reminder email will jog their memory and encourage them to pay you. (Tip: if you charge a penalty for late payments, put this information in your follow-up.)
If, after sending a few follow-up emails, you still haven’t been paid, you may have to pick up the phone and actually talk to your customers. Fortunately, automated follow-ups should help you avoid this unpleasant scenario in 99% of cases.
7. Be Willing to Walk Away
Last, but certainly not least, be willing to walk away.
Not from the money you’re owed. If you did the work, you deserve to be paid and we recommend fighting for your due. What we mean is, walk away from bad customers who consistently pay late. Simply refuse to work with them. They aren’t worth the hassle.
Customers who don’t pay you on time hurt your cash flow, which, in turn, hurts your business. Instead, focus on customers who respect you and the services you provide enough to meet your payment terms. Concentrate on these folks and cut the rest loose.
If you want to build a successful home services business, you have to learn how to get paid by customers faster. Doing so will minimize cash flow issues, reduce stress, and give you the confidence to grow operations as you see fit.
Fortunately, there are a bunch of simple things you can do to encourage timely payments. Implement the seven tips above and watch your business improve.