January 19, 2021

How much do your customers owe you?

If you go overdrawn at the bank, they are quick enough to let you know you have their money if it is not by prior arrangement. And they charge you to let you know and charge interest until you pay them back.

Birmingham-20121029-00115Would you be better off if you treated your customers the same as the banks treat theirs? It may be that you wouldn’t want to upset your customers and you would rather they did not go to the competitor every couple of years. But, you are in business. If people buy from you, they should expect to pay. It is up to you to make it clear before they buy, when you are expecting payment to be made.

If you operate with a bank overdraft, you know all about paying interest. If all your customers paid you within the terms you lay out at the start, how much smaller would your overdraft be? How much less interest would you be paying – all that then becomes profit and can either be used elsewhere in the business or be enjoyed by the business owners.

Many business owners don’t like to charge customers interest, but the banks have no problem! Remember, the alternative to charging interest is to either make sure you are paid before the work is done, or depending on the industry, issue credit terms and make sure you have a system in place to chase the moment an invoice becomes overdue, relentlessly until it is paid.

Penny LoweI do suggest a system as otherwise you can find you spend more time chasing money than making it. If you do find this is the case, you may need to revisit some more basic questions such as why do customers feel they don’t need to pay. Do you need to charge some customers a premium as you guess from the start they will be late payers? Do you need to hire someone to get heavy as you would rather keep them sweet for the next purchase they choose to make. I have been used as an excuse – and a threat when my clients are chasing money. My accountant is worried that you might be unable to pay and won’t let me do any more work until you do. If you don’t pay, you will leave me no choice but to pass this debt over to someone else to deal with (accountant or small claims court).

The trick is to be consistent and this is another reason to have a system. If ‘it’ can chase for you, it will free up time for you to do the more profitable tasks.

What tips do you have for making sure your customers pay? Enter your comments below.


  1. We always included 2% monthly interest due on overdue accounts and pointed it out right from the start.
    At 30 days we sent a reminder saying interest was accruing so this is just a friendly reminder in case it had slipped their attention. At 45 days we issued an invoice for interest due and in most cases at that point we got paid (without the interest). We then sent a credit note for the interest with a thanks for payment note.
    It was rare to have to do this more than once per client. If they objected we said those were the terms our business had agreed with our bankers and accountants and our hands were tied. We lost very few clients and those we did generally were not in business too long anyway.
    State your terms clearly, show you mean to implement them and spend the time you would need tospend on chasing payments sourcing customers instead is my advice.

  2. I have a clause on my invoice stating that 10% will be added for late payments, due to additional administration costs. I point this out at the beginning. I always ask for full payment upfront where ever possible or a minimum of 50% to start the work, with the other 50% due half way through.

    That is my policy and it works for me. I keep firmly to this because I’ve had bad experiences in the past and my take is that if someone is not prepared to pay atleast 50% upfront, then they are not going to be good payers in any case, and/ or they are not a good client a for me.

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