If you’re running a tradie business, you’re probably already familiar with the hassle involved with getting paid by tight-fisted customers. And as someone starting out with their own business, not getting paid on time can be a major blow to growth as you won’t have enough resources for improving operations or purchasing supplies. To ensure you get your dues sorted on time, it’s important to set up a proper accounts receivable process. So, what are the points you need to keep in mind when doing this? Let’s take a look.
1. Basic Credit Assessment
Many field service contractors have a habit of extending credit to customers who are not qualified to pay their dues on time. While larger companies have entire teams of analysts and professionals who perform credit assessments on customers, this sort of due diligence is a luxury most smaller businesses can’t afford. So, if you’re a business that doesn’t have the budget to get basic credit assessment done, maybe it’s not worth the risk.
2. Create and Share Relevant Documentation
Before you even think of extending credit to customers, ensure you properly document and share the detailed accounts receivable process with all parties involved. Set up clear instructions about all the variables like the due date and interest to be charged if payment is past said due date. You can even consider providing a small discount for customers who pay much earlier than the due date.
3. Send Invoices on Time
The best way to ensure you get paid on time is by providing your customer with an invoice as soon as the job is complete. Keep the invoice itemised by clearly stating all the financial terms with a breakdown of each service and sub-service to ensure there are no disagreements about the agreed-upon scope of work. You can consider using a mobile payment option through a job management app. This allows your in-field technicians to show an actionable e-invoice to your customers once the job is done.
4. Send Timely Reminders to Pay Up
Sometimes, you have to deal with customers who may have the resources to pay their dues, but either forget to do so or are too busy to bother. For such customers, it is advisable to give constant reminders about the payment due date. Consider using a smart app to automate this process and keep a track of customers who fall back on their payments.
When the going gets tough, the tough gets going. And when all efforts have been exhausted, you’ll be forced to make the tough decision of sending the liable account to collections, which is often the only route available for recovering pending payments. However, before you approach a collection agency, consider talking to a lawyer to find out how you can word some firm communication requesting your customer to pay up—politely, of course.
If you have the resources, getting an outside agency to take care of your accounts receivable process is the best solution to fixing your late payment problems. The main advantage of outsourcing this process is that it lets you focus on factors that produce revenue for your company, while also reducing the risk of potential costs. If you do decide to outsource, ensure you pick an agency that is accustomed to managing the unique nuances of the field service industry.
With this in mind, do remember: if you’re ultimately unable to collect despite going through the whole accounts receivable process, you may be forced to write-off the lost revenue, and will remain in your accounting books as a bad debt, i.e., a debt that is unlikely to be paid off soon.