How To Design A Billing Process That Gets You Paid On Time
Dealing with late-paying customers can be a real nightmare. They are the gut-wrenching disrupters of your company’s lifeblood - cash flow. The real, not hypothetical “some-day-you-might-get-paid” kind of money. The kind that keeps your company in business. So when customers start treating your payment as a polite recommendation, it’s time to switch things up!
Now, before we start shifting blame to the customer, it’s time for a small reality check and my not-so-popular opinion. In 99% of cases, late payments happen because of something you did or didn’t do before the due date. Yikes - a tough pill to swallow. Here is the good part: that means you’re in control and can do something about it!
The solution is NOT to stack up on more technologies like invoice factoring, automated payment reminders, invoice gateways, or any other service that is trying to capitalize on your problem. Your issue is not the technology; it’s your communication. Instead, you need a solution that keeps it from happening in the first place. So, how can you do that? One word - Experiments.
Start Running Smart Experiments
Do a quick Google search, and you will find millions of articles click-baiting you with a magical cure for late payers. What you will get is a list of generic strategies that are completely disconnected from your situation - beyond the fact that you are not getting paid on time. It’s almost as if they got the whole order wrong.
Think about it. A doctor wouldn’t prescribe you medicine based on a single symptom. They’d ask you a bunch of questions, run some tests, and evaluate your results to get the best possible treatment for your specific situation. Dealing with late payers should be no different. You need to understand what makes them tick. Ask questions, make assumptions, run tests, document what works, and do it all over again until you hit it home.
We know that it can be challenging to get started, so we outlined this simple step-by-step guide to help you fine-tune your billing process by using small experiments.
Step 1 - Assess Your Late Payers
Get yourself a spreadsheet and write down every client that didn't pay on time within the last 3-6 months (or more). For each client, add the following:
How often did they pay late? On time?
How many extra days did it take them to pay you?
What excuses did they make?
What have you tried to address the problem?
If you are crunched for time, make a rough estimate - it’s not as effective, but it’s a start. Based on that, start categorizing them into sub-groups. For example:
First Time Offender - Has only paid late once.
Unpredictable Shopper - Pays late once in a while.
Habitual Late Payer - Pays late all or most of the time.
This will help you prioritise high-risk clients, find more effective strategies for each, and keep an eye out for trouble makers the next time an order comes around.
Step 2 - Explore Causes
There is always a reason for why the customer didn't pay on time. It could be you, it could them. Either way, without knowing the problem, you can't design an effective solution. Consider all the things that could have gone wrong: Did the invoice arrive late? Did they forget? Were prices mistated? Could they be having cash flow issues?
If you have concrete customer feedback (aka. “excuses”) - even better! Those are diamonds in the rough because it gives you something concrete to work with. If you don't, ask for it! You can position it as a “how can I make your life easier” type of conversation, which might actually help you build better client relationships in the process.
Step 3 - Design Solutions
Consider ways in which you can resolve those problems. Keep in mind that experiments don’t work if you try a bunch of new things at once because you won’t actually know what worked and what didn’t. Suppose you have the following customer excuses, then your solutions could look something like this:
“We didn’t receive your invoice” → After sending the invoice, send an email two days later to confirm that it arrived
“We always pay our invoices on a fixed day each month” → Ask for their payment cycle and try to align your payment terms
“The product/ service did not live up to our expectations” → Call to confirm the quality of the services/products once delivered
“The company name/address/balance is not what we agreed on” → Call or email the customer to confirm the invoice details are correct
Step 4 - Launch & Track
The next time an order is placed, put your solution to the test. To get the most from your experiments, create a simple spreadsheet that helps you to observe customer reactions, measure success, draw lessons, and fine-tune your existing billing process. I would track the following information, but feel free to add your own personal flair:
Late payer category
Reason for paying late / customer excuses
The solution you are testing
Outcome (i.e., paid on time/paid late)
Step 5 - Analyze Results
When the results start rolling in, look at what worked and what didn’t. Keep in mind that your experiment doesn't have to be "successful" to be useful. It's all about figuring out what you should or should not be doing. Or in other words, how you can influence your clients behavior in a way that gets you paid on time.
Make sure to slice and dice the data for hidden gems, like sub-groups (i.e., companies with a similar size, order volume, product preference), so you can optimize your billing process for different types of clients.
Step 6 - Draw Conclusions
This is where you start building, documenting, and implementing your best practices. Based on the results, ask yourself:
What did you learn?
What solutions can you strike off the list?
What changes should you make to your existing billing process?
Who will these changes apply to? A specific customer a sub-group?
You probably won't hit it home with everyone right away. However, over time, your billing process will become more and more refined, making late payers a hassle of the past.
Start Playing The Long Game
Experiments won’t give you magical overnight success. They require patience, hard work, and dedication. However, if you put in the work, the results will follow.