06/ 13/ 2007
by Jeffrey Moses
Set specific due dates on invoices and proposals
Because maintaining cash flow is vital for small businesses, you should design invoices and proposals to encourage customers to pay on time. An invoice should include a specific date when payment is due, and a due date for payment (or precise payment schedules) should be a central part of each proposal.
Speaking generally, there are three levels of payment due notices on invoices:
1. No mention of when payment is due.
2. A "payment due upon receipt" notification.
3. A specific date when payment is due.
Statistics show that customers tend to pay on time most often when a specific date for payment is included on invoices. Psychologically, seeing an exact due date seems to be more compelling than invoices that state "payment is due upon receipt." Perhaps this is because when customers prioritize invoices for payment, they tend to put off invoices that are due upon receipt, while an exact date seems for final and urgent. Clearly, however, both options are better than to not mentioning a date at all.
Also compelling are notifying customers on follow-up statements when payments are 31 to 60 days or 61 to 90 days overdue. Again, showing specific durations of being overdue on payments is more compelling than simply stating that payment is overdue. Interest penalties on late payments also help motivate customers.
Ideally, payment terms or due dates should never be a surprise to customers. Proposals and contracts, no matter how informal, should contain in clear wording all payment terms. These should include terms or dates for down payments, payments required before shipping or starting work and all follow-up payments. When a customer signs off on a contract or proposal, and payments terms are part of the agreement, a follow-up call by a sales representative or customer service agent can remind of the initial agreement when required.
Receiving payment on time is key to maintaining cash flow, and managers should remind sales staff to always point out payment schedules and due dates at the time of signing contracts. Customers are not put off by this. They understand that they will have to pay for products or services rendered. Highlighting payment schedules from inception makes it easier to keep finances on track.
