I had an interesting conversation with a friend of mine who was starting up his own business. After talking at length about his business model, selling strategies, marketing and his exciting new products, I simply asked him, when did he expect to get paid by his customers? I wasn’t surprised when he said he hadn’t given it much thought as generally this is not the top priority for most new business owners. He assumed that payment would just happen.
Irish people generally don’t like the idea of asking for payment. There are a variety of reasons for this but in my experience, the three main reasons are (1) it is a barrier to sales, (2) they feel it will damage the relationship with their customer and (3) If they are a business owner, they believe that asking for money gives off the perception of a failing or vulnerable business.
Not having the conversation around payment terms at the point of sale can potentially cause conflict at a later stage. What if you release your product to your customer, expecting payment straight away and your customer has a different expectation. They may have an internal payment process that you never asked about. For example, their payment terms are strictly 30 days from month end. This means that if you send an invoice on 5th June you won’t get paid until the 31st July. Ouch! If you did have the conversation at the point of sale you would have had the following options (a) been aware and agreed to the terms, (b) renegotiated the terms or (c) chosen not to do business. Now you are in a situation where you will need to have a tricky conversation. This could have been avoided by building the question of payment into your sales pitch.
It made me think how something that comes second nature to me was ground-breaking for my friend. We went on to speak about how he could build this advice into his existing sales pitch. I also advised him to practice asking for money. This would facilitate an easy transition into broaching the subject of payment with his customers.
Top tips for a new business owner
- How quick ? – Ask yourself how quickly you need to get paid for your products/services. How long can your business wait for cash? Decide what this period is and avoid deviating from it. Consider asking for a portion of the payment up front.
- Have the conversation – Let your customer know what your payment expectations are and build the question of their payment terms into your sales pitch. Some of the questions you need to ask are; To whom do I need to send the invoice? (get a name and an email address) Do I need a Purchase Order number? Does the invoice need to be signed off by another person? How you they pay e.g. bank transfer, cheque, credit card or cash?
- Who to invoice ? – Ensure you have the correct legal entity on your invoices. This could delay payment.
- When to invoice ? – Straight away. Do not delay in sending your invoices. The quicker you get it in the quicker you get paid.
- Invoice content – Ensure you have a breakdown of costs to avoid future queries. Put your bank details on the invoice. Date the invoice. Have your payment terms on the invoice with an expected payment date. Ensure your contact details are on the invoice. If there are queries, they can contact you immediately to resolve promptly and get paid. Include a unique invoice number. This will provide a reference point when dealing with an accounts payable department
- Follow up call -Once you have sent the invoice phone as soon as practical to ask if they are in receipt of the invoice and if they are happy with everything. This confirms that they have it and if there are any queries these can be addressed immediately. This should be a very informal and relaxed conversation whilst still getting your point across.
- Read the signs – If you find yourself in a situation where a potential customer is avoiding the conversation around payment you can be pretty sure that there will be a problem when asking them for payment at a later stage. Ask yourself, “do I really want to do business with this company?” In the long run, its far cheaper to walk away from a sale than to not get paid for your product or service.
- Stick to your terms – No matter how healthy your bank balance may be, never have a relaxed approach to your payment terms. Once you allow a customer to pay outside of their credit terms you set a precedent that is very hard to reverse when times are hard.