How to create and communicate payment expectations for customers

Effective communication can solve many challenges in a business of any size. In fact, it is a mission-critical component of any type of business. Whether it’s internal or external communications, every business needs to make this a priority.

When it comes to cash flow in an organization, this is a critical area where strong communication is key, and consistent communication can make a difference.

Being crystal clear on payment expectations with customers and clients can drastically impact your cash flow.

Clear expectations help prevent misunderstandings and ensure more timely payments. They can also protect your business’s financial health, promote transparency, and enhance the trust you have with your customers.

Check out our quick guide to understand why payment expectations are important and how to implement them.

Setting payment expectations with payment terms

Defining your payment terms explicitly is one of the basics of getting paid on time. You must give your customer a due date, whether it’s a given period of time or an exact date. Some common terms include Net 30 and Net 15 or Due on Receipt. You can also give a specific date that your payment is expected to be made. Communicating to a customer when you expect to be paid is mission-critical.

Specify your accepted payment methods

To increase your chances of getting paid on time, you must specify the payment methods that your business accepts. And it goes without saying, there are many options for accepting payments from your customers. Of course, cash is king…and there’s a good old-fashioned check. You can accept these on site or provide your customer with a return envelope. Make sure you’re accepting credit and debit cards and invest in the latest technology. And digital wallets such as PayPal, Venmo, and Apple Pay are becoming more popular. Give your customer options.

Communicate late payment policies

Consequences may be a strong word but you must communicate what will happen if a payment is not received according to your expectations. These should not only be in writing on each invoice but if you’re using agreements, which are strongly recommended depending on your business, late payment policy should be detailed in those documents as well. Some late payment policies include late fees such as a fixed fee or a percentage of the invoice amount, interest charges and if late or nonpayment persists, suspension of services. You can even add in possible debt collection activity after a certain period of time such as 60 days.

Billing frequency and intervals

It’s good business practice and accounting principles to clarify how often and when you will issue invoices. Depending on your business, you and your bookkeeper or CPA can make that decision. Common intervals are weekly, biweekly and monthly. You can even specify specific billing dates such as the first of the month. Other businesses such as the trades and those in the repair industry issue invoices right on the spot. In your expectations, it’s important to specify when your customer will receive an invoice.

Here’s some best practices for communicating payment expectations.

Clear and concise invoicing methods

Your organization must ensure that your invoices are easy to understand and include any necessary details. Those include invoice number and the date of invoice. Itemize the list of goods or services to the best of your ability and make sure you have a total amount due. Then communicate your expectations including payment terms, due date, your accepted payment methods and any contact information for payment inquiries.

Provide written agreements

Depending on your business you may want to provide some type of written agreement. It does not have to be lengthy but needs to document the terms of service and payment expectations. You may want to have your attorney draw up a simple agreement. Some small businesses hesitate because they do not want to lose a customer but it is a simple way to ensure that the customer acknowledges their understanding and acceptance of payment terms.

Verbal communication of payment expectations

Telling your customer in person about payment expectations is about as simple as it gets. You can discuss payment terms during your initial consultation or any type of meeting you have. That verbal communication can reinforce any type of written agreement and you can allow the customer to ask any questions to clarify.

Remind customers that a payment is due

If customers miss payments, it’s important to send polite reminders. Some businesses have also found that it is effective to send reminders when the due date approaches. Payment reminders come in the form of email, a paper statement and a polite phone call to check in about payment. But remember, it is important because for many people, life happens, and your missed payment could be nothing more than an oversight.

Using proper technology

If you’re running a small business, you should use invoicing software to automate and streamline your accounts receivable process. If you’ve hesitated, understand that these tools can generate professional invoices, send automated reminders, and track the status of payments.

Use a reputable debt collection agency

There will come times where the best intentions of your business and systems will not be enough to get a customer to pay. Your customer may be having financial difficulties or there may be a dispute on the invoice and they don’t know how to have that discussion with your business. That’s why it is good business practice to have a relationship with a debt collection agency that understands your industry. It’s also important to find a collection agency that offers a low-cost debt collection solution to help you manage those resources of collecting past due invoices.

All these methods and systems will help to ensure your business of any size maintains positive cash flow.