Why your customers don’t pay – and what to do about it

I was in a recent discussion on FaceBook about how to get customers to pay for items.  The majority of people in the discussion had experienced customers buying goods from them, and months later still hadn’t been paid.  The discussion was around how many invoices you send, how many months do you wait and can you cancel the order.

Firstly, I was stunned that this was such a huge issue.  That business owners would allow a customer to drag payment out for months.  Also the amounts – one business owner mentioned they had over $2000 in goods that had been purchased but not yet paid for, and that was just for that month.

And secondly, I was really surprised that the business owners would allow this to continue without resolving the issue the first time it happened.  They had all put hours and hours of actual time, mental energy and stress into attempting to sort out this issue.

Who allows this to happen?

This is predominantly an internet and freelancer phenomenon.  You don’t see people going into the supermarket to buy their groceries and asking to pay later.  People don’t go to a car dealership, buy a car and tell them they’ll send a cheque later.

I’m not saying it doesn’t happen in the brick and mortar shops – think of all those lay-bys (lay-aways) that get ignored and forgotten – but it’s much less common in brick and mortar shops.  This happens because:

1. Online, we’re not as real.  The customer isn’t face to face with a real person.
2. It’s easier to forget about the purchase, for the reason above.  Because the customer hasn’t interacted with a real live person, hasn’t handled the item before purchase, it’s not as real to them.
3. A lot of the businesses in the original discussion I was in were selling via FaceBook and this adds another mental barrier.  If you’re buying via FaceBook, a social networking site, rather than a dedicated business website, then you’ll regard the business as not a genuine serious business.  It feels like it’s a hobby, not a business that they’re buying from.  So the importance of actually paying for the item is seriously reduced.
4. Many online businesses and particularly the micro and at home business don’t have clear Payment terms and policies, and/or don’t enforce them.
5. We allow customers to get away with it.

How to fix it

Like anything in business, resolving this issue is a multi-pronged approach.

1. Write a clear Payment Policy that is on your website, your FaceBook page, attached to invoices and anywhere else it needs to be.  Make it very clear that when a customer purchases from you they are agreeing to the terms of your Payment Policy.
2. If you currently have purchases that are outside your Payment Policy, ie: haven’t been paid for in more than two weeks or whatever your payment terms are, give them one last chance to pay:
   1. Send an invoice with “Overdue” written on it in large red letters.
   2. Include a date when payment must be received by, and clearly state that the order will be cancelled and the items returned to stock if payment is not received.
   3. Cancel any outstanding orders after this date.
3. Make invoicing and payment simple.  Use a shopping cart that sends invoices, tracks orders and payments.
4. Demonstrate to your customers that you are a serious, genuine business.  Have a proper website, and use your FaceBook page to drive traffic and to promote your items.

What to include in your payment policy

1. How long people have to pay for an item.  It can be three business days, a week, two weeks, whatever works for you.
2. Tell them your follow-up policy.  IE: If payment is not received by the due date they will be sent one reminder invoice.  If payment is still not received the sale will be cancelled.
3. State your policy for custom orders or services. Eg:
   1. Work on the project will not be started until payment is received in full,
   2. All work requires a 50% deposit and the balance within two weeks,
   3. If you’re taking deposits or instalment payments, be very clear what will and won’t be done at each stage.
4. How to contact you if there is an issue with payment.
5. Your postage policy – that no items will be posted out until payment in full is made.

Enforcing the policy

Enforcing the policy is both the easiest and hardest aspect of this.  It’s easy because any time a customer objects because an order was cancelled for non-payment you simply refer them back to your Payment policy.

It’s hard because we feel as though we lost a sale.  In truth though, you didn’t lose a sale – you never actually had one in the first place.  It’s not a sale until you’ve received payment.

It’s up to you how quickly your customers pay

Don’t allow your customers to drag out payments in the first place, and you won’t be wasting your valuable time trying to chase them up.  Require payment at the time of purchase or within a couple of working days.

Initially you may have objections from your customers, after all, you’ve taught them that you’ll wait and now here you are expecting them to pay immediately.  Stay firm, this is your business.

Stick to your guns – nicely and politely – and your customers will quickly adjust to the new terms and will have more respect both for you and your business.

Sounds like a Win/Win to me.