How Do I Bill Customers to Get Paid?
It's great to have sales of products or services in your business, but it's even better to receive the money from those sales.
How Do I Bill Customers?
When you start a business, one of your first tasks should be to decide how you will collect money from customers.
How you get money from customers depends on your business type.
- If you get money from customers through credit or debit cards, you don't have to worry about collecting.
- Some businesses accept only cash, but there are problems with a cash business, including not keeping good business records.
- If you don't get paid at the time of the sale, you must bill customers (including other businesses), which means you will need to find a way to make sure these bills get paid.
Rule #1 for Getting Paid by Customers
The most important thing to remember about billing and collecting from customers is that the longer the bill is unpaid, the less likely it is that you will get your money. So you will need to set up a specific collections process and make sure you follow it with every customer.
A System for Billing Customers
Then set up a system to capture the information about customers - who owes you money, how much is owed, and how long the amount has been owed. Most business accounting software programs have a customer module that allows you to enter this data.
You can enter the invoices when you do the work or deliver the product, and enter payments as they come in. But you must keep up with this paperwork to keep track of accounts receivable (amounts owed). An accounts receivable aging report is your tool for deciding on a billing strategy for customers.
Sending out Bills
Remember Collections Rule #1 when you consider sending out bills. Many businesses send out bills to customers only once a month, which means they may wait up to six weeks to get paid (a month to send the bill, then several weeks before the customer pays).
Send out bills more frequently, or make phone calls in between, to nudge remind customers to pay. Some companies send out bills in batches, with a portion of the customers getting billed every week. This batch billing helps keep cash coming in on a more continuous basis.
Plan Your Billing Letter Strategy
Your collections system can include phone calls, letters, or both, depending on your type of customer. One strategy is to start out at a lower level of intensity and concern and gradually become more assertive, then aggressive. This increasing level strategy can work for either phone or letter or email billing reminders.
- Level One - "Oops"
- This letter assumes the customer forgot to send payment; it is the "you probably sent this but the payment must be in the mail.
- Level Two - What is Wrong?
- This letter assumes the customer wants to pay but unusual circumstances are preventing payment. Letter two suggests payment alternatives, but gives a firm date by which payment must be made.
- Level Three - The Ultimatum
- This level should be a letter. It assumes the customer is not going to pay and states a firm date by which payment must be made or collections processes will be initiated. Do NOT send this letter unless you intend to actually go to collections on this debt.
If the customer just won't pay, you'll have to take the final step - taking the person to small claims court or turning the bill over to a collections agency. Read more about your alternatives if a customer just won't pay.
Billing Customers: Putting it All Together
In conclusion, make a decision on your overall strategy for billing. Will you send letters? Use the phone? A combination? When will you send out bills or make phone calls?
Put together a general system, with letters and phone scripts, then have everything reviewed by your attorney to make sure you are abiding by the law. Then use your accounts receivable aging report to guide you as you work through these customer accounts and decide on billing strategies.