Customer payment policies: using them to your advantage

Most small businesses, at one time or another are likely to have problems with their customers. One frequent issue is not receiving payment from the customers for the service or product that you provided. Here are some tips for avoiding some of these common problems with customers, including nonpayment.

Preventative actions

The best way to handle customer problems is to avoid them in the first place. The information provided here may not guarantee that customers will sing your praises, but it will help you to get paid on time and limit your potential liability.

Customer payment policies

From the beginning you need to set up clear cut policies outlining how and when payment is to be made. This policy will help clear up any misunderstandings between you and the customer. If you are not getting cash up front, all your contracts and invoices should clearly state when payment is due and what happens if the customer pays late.

A typical policy will look something like this:

“Customer Payment Policy. All payments must be received by ABC, Inc. within 30 days of the date of the invoice. Any payments received after said date will be subject to a later interest fee of one-and-one-half percent (1 and ½ %) per month. The customer shall also be responsible for all attorney’s fees, court costs, and related expenses incurred in the event that payment is not timely made and proceedings are brought by ABC, Inc. to collect sums owed.”

Early payment discounts

You can improve you cash income and cut down on delinquent payments by offering discounts for early payment. Consider adding the following clause, or something similar to it, to your invoices and contracts:

“Early Payment Discount. The Customer shall be entitled to receive a discount on the bill of two percent (2%) of the face amount of the bill. I order to receive this discount, ABC, Inc. must receive full payment within ten (10) days of the date of this invoice.”

These types of policies are just two of the preventative actions that small business owners can take in order to ensure payment and clear up customer problems before they occur. These clear cut policies, in addition to other safeguards that will be discussed in later articles, can help a small business gain an advantage very early on in its growth.[1]

[1] Richard D. Harroch, Small Business Kit for Dummies, (Wiley 2nd Edition)(2004).