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Penalties vs Discounts on Invoices

The question for busy small business field service owners is how to establish invoice terms that enhance their cash flow.

You might use the best invoice software to bill your customers, but, unfortunately, the best software doesn’t ensure you get paid for jobs your team expertly performs.

To ensure you enjoy a steady cash flow for your field service business, you need to establish invoicing terms that prompt clients or customers to send you payments.

We closely examined several studies and extracted 5 principles that increase the amount of money coming into your business, without you having to remove yourself from the field to chase down delinquent accounts.

1. A Case for Being Polite

You may already have a late invoice (or a few) on your radar, and might be feeling pretty frustrated. Resist the urge to confront delinquent clients with a sour attitude that only ensures your late payment, remains, well, late.

Politeness matters when it comes to contacting customers that exceed the invoicing terms for payment. Simply using the words “Please” and “Thank You” can increase the number of unpaid invoices that turn into paid invoices, enriching your cash flow.

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Simply using the words "Please" and "Thank You" can increase the number of unpaid invoices that turn into paid invoices...

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2. Avoid Communication Breakdowns

Many of your customers simply forget to pay. They don’t use invoice software that alerts them about invoice payment deadlines. Therefore, use politeness when speaking to or emailing customers about payments.

Start the communication by sending a polite email reminding a client that the deadline for payment is approaching. Follow-up the electronic message, with a phone call that reminds a client once again about a pending payment deadline.

Once the payment deadline comes and goes, use the same digital first and vocal second communication method to remind customers about delinquent payments.

3. Give Your Customers a Generous Payment Window

It’s important to set a payment window that agrees with customer accounting periods. Many field service business operators opt for the 21-day payment window, although 30 days ensures you fall within any client’s accounting period. However, it’s not enough to set up a generous invoice payment window to improve your cash flow. 

You also must use the right invoicing terms to ensure payments. Don’t use the often-misused term “Net.” The word confuses customers that expect to see “Days.”

Think about how you react to an invoice that presents “Net 21,” as opposed to an invoice that states payment is due within “21 days.”

4. The Penalties vs Discounts Debate

Savvy field service business operators understand that combining incentives to pay with penalties for failing to comply with invoicing terms is the most effective way to enhance cash flow. Customers might respond to discounts for paying invoices early, but typically, any invoice you send customers via email or snail mail remains in the unopened file for days on end.

Combine a reasonable discount and realistic late payment clause to any invoice that you send clients. Think of using discounts and penalties as a carrot and stick approach for maintaining a healthy small business cash flow.

5. Establish a Convenient Invoice Payment Policy

Make it easy for your customers to pay. Your customers want invoicing terms that minimize the amount of time they spend paying you. The best way to establish convenient invoice payments is to accept payments online or electronically.  

Some of your customers probably want to continue writing checks for the field service jobs you perform. If that’s the case, the same customers most likely want paper records that detail your invoicing terms.

A healthy field service business cash flow requires several events to fall in place.

First, you must exceed customer expectations to ensure invoice payments. A dissatisfied customer typically delays payments or worse, refuses to pay any of the money presented within the invoicing terms.

Second, you need to use invoice software to keep track of every customer account. Features such as automatic invoice billing and delinquent account alerts keep you ahead of the cash flow curve.

Finally, be polite every time you discuss payments with customers.

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