Ways to make sure your credit policies are clear and precise so your invoice gets paid on time.
Chicago, IL – Now that it has been a few years since the 2007 economic meltdown, business owners are looking at how they may have contributed to their own difficulties during this period. One area they are increasingly focused on is referred to as the “credit-to-cash” cycle. This means how long it takes clients to pay for services after an invoice has been submitted.
Under pre-2007 economic conditions, most businesses, including most cleaning contractors, were not particularly focused on customer payments. The “honor system,” as it is called, was strong due to the robust economy and most businesses paid invoices in a timely manner.
But, as the economy faltered so did payments. Many accounts payable departments determined which invoices were paid based on three things:
- How badly they needed a product or service
- Relationships and personal ties with vendors
- The credit policies of vendors.
There is not a lot that cleaning contractors can do about the first two items. Those are up to the client. But action can be taken on the third item.
That’s why this month’s Business of the Cleaning Business from Tornado, manufacturer of professional cleaning equipment, suggests ways to make sure your credit policies are clear and precise so your invoice gets paid on time.
Among the steps to take include:
- Clearly inform clients of your payment terms and, if necessary, what will happen if payments are not received within a specific time. Will there be interest charges? Late payment fees?
- Gather information ahead of time on a client’s credit worthiness; a start-up company may be on a less solid footing than a company in business for years.
- Cleaning contractors take special note: invoice customers at the start of the month and never at the end of the month of service.
- Make sure there are no billing errors. If the computer coughs up your invoice due to errors, it can mean the invoicing process must start all over.
- Make sure the invoice and all charges are clear.
- Move customers away from mailing checks to electronic payments.
“And consider offering an early payment discount,” says Sean Martschinke, a CIMS ISSA Certification Expert (I.C.E.), and marketing manager for Tornado. “An early payment discount can jump your invoice to the top of the batch where invoices are payed first. In some cases, you have to decide: do you want to be paid fast or in full?”
The Business of the Cleaning Business Advisory is designed to help building service contractors operate their businesses more efficiently and profitably.