How to Speed Up Payment
Cash flow is key to the success of every business but it can often be difficult to perfect. If your customer is choosing which business to pay first, make sure you are always on the top of their list!
You can do this in a number of ways – either through providing your customer with benefits or detriments.
- Offer a Discount for Early Payment
A great way of enticing your customer to pay quickly is to offer a discount for early payment. If your payment terms are 14 or 30 days, offer a discount for payment one week in advance. Generally, a discount will be between 5-10% of your total invoice. This creates a reward for your customer and focuses on making payment in a positive light. However, be prepared for customers to pay the discounted amount outside of the discount period. For these customers, you must be strict with enforcing full payment, to ensure that they understand it is a true benefit to receive a discount from you.
- Offer an Incentive for Future Orders
You can require different payment times and methods for different customers. You can include longer payment terms as an incentive for customers who pay on time and have been a customer for a set period. This shows your customers that you value their loyalty and are willing to give them special treatment that they have to earn.
- Require Full Payment on Default and Default Interest
You can require your customers to pay all of their invoices at once if one becomes overdue. You can also charge interest on overdue invoices. Generally, default interest of 10-14% will be enforceable.
These methods act as a punishment to customers, as opposed to an incentive. They are also reactive, which means that you have to wait for your invoices to become overdue before you do anything about them. They can still speed up payment as they act as a reminder to avoid paying your invoices in bulk or paying default interest in the future.
- Fast Tracking Payments in Construction
If you are in the construction industry, you can really fast track payment by utilising the Building and Construction Industry Security of Payment Act 2002 (Vic) (the Act). Under the Act, there is a right to progress payments.
If the Act applies to you, you should update your invoices to include the information required in a ‘payment claim’. This includes setting out the work, good or services supplied, the amount claimed and refer to the Act. Once a payment claim is made, the other side must pay in full or provide notice of its dispute in a ‘payment schedule’. Where neither of these occur, the other side must pay the payment claim within 10 business days. If they default, there is an expedited process to force payment in the courts.
By transforming your invoices into payment claims, it immediately puts the other side on notice that they have to pay you quickly.
Make sure that any of these tips you use are disclosed in your terms and conditions.
If you need assistance, please contact one of our experienced debt recovery team members at Taurus Legal Management on (03) 9481 2000 or email@example.com.