6 Proven Steps to Collect Payments: Never Again Let People Steal Your Money
Why Receivables Collections Matter
Collecting your sales payments is very important. Many companies have gone bankrupt just because they couldn’t collect payments from customers. This is actually one of the main reasons businesses fail. When you collect payments faster, less money gets stuck in receivables, so you have more cash to run your business. Think of receivables like money frozen in ice – you can see it, but you can’t use it until it melts (gets paid).
The key point is simple: act early. You have a better chance of getting paid if you start collecting early. Many businesses learn this lesson the hard way, but you don’t have to.
The Six-Step Collection Strategy
Step 1: Prioritize Pre-payments
Keep it simple – only accept pre-payment and say no to after-pay arrangements. This way, you collect 100% of your sales. This works best when you’re working with new customers.
Step 2: Offer Payment Options
Sometimes customers will only work with you if you give them credit. When this happens, give them 2 clear options:
· Pay upfront at the standard price
· Pay later with a premium (say, 10% higher)
Not paying quickly becomes a loss for customers, and people hate losing money, even a small amount. Most pick the upfront payment option, and since they chose it themselves, they’re happy to pay quickly. This approach uses psychology to give customers control while protecting your business.
Step 3: Do Your Due Diligence
If you decide to accept later payment, ask them to show their financial statements in exchange for granting credit. You want to check if they have enough money to pay. Look for these main things:
- If they have enough cash to cover all obligations
- There is not too much debt
- They have good operating cash flow every year
Also, search online for any negative information to avoid risks. This extra checking can prevent big problems later.
Step 4: Set Credit Limits Wisely
Don’t give too much credit, even if you could make huge sales. Some people get greedy and only chase sales – they don’t check if clients can actually pay. In the end, they can’t collect their huge receivables and go bankrupt. Your mindset matters here. Focus on getting cash first, not sales or profit. Sales and profit are just ideas – only cash is real. Many small businesses are just one step away from running out of cash, and they can’t afford unpaid bills.
Step 5: Invoice Frequently
For big contracts, you can send invoices every week. Normal billing usually means month-end closing with payment at next month’s end. This means waiting 2 months to get paid for work done at the start of a month. This ties up more money in receivables, which hurts your cash flow, especially when growing fast.
But if you bill weekly and make them pay within a week, you wait 2 weeks at most. That means 4 times faster payment, with only 1/4 the amount of receivables. The best part is, if they don’t pay, you can stop providing your service or product. They must pay for the previous week to keep doing business with you. Also, when you bill sooner, they remember better, so they’re more likely to pay.
Step 6: Follow Up Consistently
Don’t hesitate to follow up. The Japanese yakuza manages to collect payments even with interest rates way above legal limits – debts that increase with compound interest and should be nearly impossible to collect. Their secret? Simple consistency in following up.
While I am not suggesting anything illegal, their core approach – consistent follow-up – is worth noting. They make calls and visits to debtors, their families, company – everywhere until payment is made.
If you’ve followed the previous five steps, most customers will pay on time. But for those rare cases where they don’t, maintain gentle but persistent follow-up. Contact them daily through calls, emails, or even visits (where legally permitted) until the payment comes through.