4 Tips You Can Use In the Service Industry to Collect Customer Payments Faster

If you’ve been in business for any reasonable length of time, you know how time consuming, costly, and frustrating it can be having to chase down payments from your customers (also known as accounts receivable). Not to mention, for many of us, it just feels yucky having to ask someone for money they owe you. But you are probably also well aware of how detrimental it can be to your business’ cash flow if you choose to ignore the situation. Rarely does the plan of “Let’s just wait and see if they pay us,” work. In fact, every day you wait to follow up on unpaid customer bills, the likelihood of your ever collecting them decreases significantly.

The four tools I am about to share with you will help you achieve the following objectives:

● Get perceived revenue as close to actual revenue as possible (perceived revenue is what you bill, actual revenue is what you deposit into your bank account)
● Keep accounts receivable to less than one month of average gross revenue
● Keep receivables aged 60 days or more to less than 30% of total receivables

Why are these objectives important?

● Maintain adequate cash flow so you can responsibly pay your bills on time
● Reduce bank interest costs on lines of credit or credit cards used to cover the cash shortage
● Achieve optimal profit – uncollected customer billings can reach 20 percent or more in unmanaged situations which directly affects profit (Income – Expenses = Profit). Also, time and costs associated with trying to collect these payments can directly or indirectly affect profits

Tip #1: Require payment up front
There are some horror stories in the service industry where someone has paid for a service up front, only to have the service provider go MIA and leave the customer hanging. However, this is definitely the exception more than it is the norm. If you run a reputable company, you should have plenty of references ready to vouch for you should you receive any hesitation from a potential customer about paying you up front. After all, who stands to lose more in this situation? If you don’t deliver what you promised, it won’t be long before your name and reputation is defamed all over social media and any other outlet the customer can get their hands on, resulting in a tremendous amount of lost business. The customer only stands to lose what they are investing here (true that is a big deal to them; but, having your name slandered for all to see is a big deal too and will likely result in a bigger monetary loss for you than it will for them).

I recommend collecting 100% up front, especially in the service industry. As Ronald Baker says in his book, Implementing Value Pricing, which I highly recommend by the way, “customers will exchange their hard-earned money for only two things: good feelings [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][and] solutions to problems” (2011, p38).

When providing a service, there is often a large amount of work being done behind the scenes, that the customer cannot see, in order to deliver that good feeling or solution to their problem that they were eager to purchase in the beginning. When they receive the deliverable, they will hopefully either feel good, have a problem solved, or both. But once that good feeling has faded or their problem is solved, your service value is diminished. At this point, you run the risk that the customer will justify to themselves that the value they received was worth no more than what they already paid you and they will politely ignore your billings or give you the runaround until you eventually give up and go away.

Tip #2: Accept Credit Cards and/or eChecks
If you are going to require payment up front, it makes sense that you would want to give them as many payment options as possible, especially if your fees are more than the average person or business has laying around on a whim’s notice. It is estimated that 94% of adult Americans have either a credit or debit card; and, I am willing to bet that an even higher percentage probably have a bank account. Take advantage of that! While there are fees associated with accepting credit cards, they are minimal and can easily be built into your upfront pricing. Also, many merchant service providers allow you to accept eChecks (automated clearinghouse or ACH) transactions for no fee. If you are interested in starting to accept these types of payments, please consult with your bookkeeper or contact us for recommendations on merchant service providers and how they can be integrated with your accounting software.

A word of caution: I know that Paypal and Square and many others are very popular right now; but, if not handled properly they can cause complications with your bookkeeping. We have cleaned up all kinds of unsavory situations where people integrated their merchant services account with their accounting software and it made a real mess. Whatever you do, don’t take the merchant service provider’s word for it if you want to know how their product will integrate with your accounting software. They are not bookkeepers and they are trying to make a sale. We recommend that you consult with an accounting professional or someone who has experience with your accounting software.

Tip #3: Use Recurring Billing
Some accounting software, such as QuickBooks Online, will allow you to schedule recurring sales receipts. If you are a service provider that charges a flat fee on a recurring basis, this is definitely a tip you will want to use. We use it in our firm because we charge a flat fee on a monthly basis for ongoing bookkeeping services. Every month, while I am soundly sleeping, QuickBooks online is processing my client’s monthly payments using the payment method they authorized us to use, sending them a receipt, and depositing those payments into our bank account without us having to lift a finger beyond setting up the schedule one time.

Tip #4: Make it Easy for Your Customers to Pay You
Humans in general are more willing to follow through on something when it is fast and easy to do so. Use e-mail invoicing with a direct pay link to accomplish this tip. Some billing software, such as QuickBooks Online (are you seeing a trend here), will allow you to e-mail your invoices to your customers with a click-to-pay option right on the invoice. The customer will enter their information (without having to share sensitive banking information with you) one time, and their payment will be processed, applied to the correct invoice and deposited into your bank account within a few days with no action needed on your part other than sending the invoice. The next time your customer needs to pay, their information will already be entered, making the process very easy and efficient every time.

I hope that you found some or all of these tips helpful![/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]