How to Get Paid: The Cold Hard Truth on Small Businesses & Money

Never forget why you are in business: To make money! You want to provide for yourself and your family, otherwise, what’s the point? I'm writing this to ensure you’re aware of the major ways small business owners can collect money from customers. I’ll start by explaining why it’s so important to push customers and clients to pay you as soon as possible and tell you some about what might happen to you if you don’t prioritize this. 

You’re running your business and you get a new customer. He’s thrilled with your product but he tells you that he forgot his wallet in his car and asks if it’s acceptable to pay you “as soon as possible”. What do you do? Take a second and think about it.

If you answered: “Let him come back and pay later,” a lot of small business owners would agree with you. It seems like the commonsensical, decent, and American thing to do. After all, maybe your customer did forget his wallet in his car – we’re all human and we make mistakes, right? My view is that if you answered that way, you need to read this twice. Why do I say this when so many small business owners would let the customer come back and pay later?

Small businesses need cash to fuel growth. And what if one of your vendors has an extremely unforgiving attitude, as I would, if you owed me money? This problem is killing businesses, and I won’t stand for it. A 2016 Australian study by PayPal and Intuit shows that Australian small businesses are dealing with $26 Billion (1 Australian dollar is equivalent to 77 cents US, as of right now) in unpaid invoices. This means that when their customers don’t pay them, they’re not doing a great job collecting. How does this affect them?

It’s not a pretty picture: “The Late Payments Study authors spoke to 508 Australian small businesses about their payments-related pain points and the impact on their cash flow. They found that the average amount owed to each small business contacted for the study was $13,200, with more than a quarter resorting to further borrowing to cover their own expenses. Others delayed rent or mortgage payments to bridge financial shortfalls.”

We’ve got the same problem in the good old U, S of A. A September 2014 study found that a staggering 42.5% of American B2B invoices were paid late, with 5.6% still unpaid by the 90 day mark. The Wall Street Journal reported that “businesses are waiting longer for commercial customers to pay their bills as many big companies continue to hoard cash to bolster their own working capital… The longer wait is taking its toll on the companies, which often have to borrow at costly rates to fill gaps in their cash flow between payments.”

When a cash shortage forces you to borrow, the bank or your friend is not going to let you borrow money for free. You’ll have to pay interest. How can you avoid this situation? I’ll give you some tips because I’ve got no patience for deadbeat customers, and neither should you.

So how do you collect the money you're owed?

The first thing to do is be absolutely clear on what you’re owed, and why. Too many small business owners let their justifiable anger affect their collection email or phone call. Trust me – I get why you’re angry and I can feel your rage. But take a moment to calmly collect yourself and be sure you fully understand the situation. Then, write a polite, straightforward email to your ne'er-do-well customer. Send it at 9 AM Monday morning, before the recipient’s week gets too busy. It should say something like this:

“Dear _________,
I hope you’re doing well.
I’m following up on the overdue consulting services invoice I sent you on March 15th. We’ve yet to receive payment. I've no doubt your inbox is filled to the brim so I wanted to follow-up on my recent email with the invoice attached (reproduced below) just to be sure it doesn't fall through the cracks. Please let me know if you’ve got any questions. If not, I’ll expect your payment this week”

See that I’ve acknowledged that the recipient is busy and that I empathize and understand the likeliest reason why he hasn’t paid me? But I also make it clear that he needs to pay me as soon as possible. Not everyone will respond immediately but you will most likely get a guilty response from your customer, indicating that he’ll take care of it as soon as he can.

To learn more and hear my thoughts on each of the major ways your customers can pay you, click here to download Chapter 1 of my newest ebook, Cold Hard Truth on Small Businesses and Money--now available exclusively at IOUFinancial.com.