Money Challenges for Business Owners: Collecting Payment

When you are dreaming up your business venture, you might not consider the process of collecting payment as an important detail. It is incredibly important to get this one down as soon as possible!

You can sell your product or service all day long, but if you are not collecting on your sales - then you won’t have a business for very long.  You will be constantly figuring out how to pay your bills and the stress that this issue creates is overwhelming.

Remember, you are in control of your business, not your clients.  We often hear "the customer is always right" and while we agree with that statement most of the time, it doesn't apply all of the time.  This is an area where you will need to set expectations and be firm!

Let’s discuss some ways to avoid this issue or possibly to get it under control.

Methods to Collect Payment

Your choices are:

• Cash

• Checks

• Credit Cards (this costs you 3% and takes about 48 hours to receive)

• ACH - Money is directly withdrawn from the customers checking account, then deposited into your account. 

• Third Party Vendors - PayPal, Venmo, etc.

Let's go through some scenarios on collecting payment:

If you're selling a service or product directly to the public with immediate payment, collecting should not pose any problems, but there are still a few considerations to keep in mind.

What payment methods will you accept? 

Cash? Perhaps.

Credit Card? Most likely!

With offering credit cards as a choice of payment, you can consider having the customer pay the 3% surcharge.  This will work in some situations, but not in many.  Often times, clients will frown upon this.

Determining payment methods will often depend on your industry.

Think about how your client expects to pay.

For example:

If you are an electrician, most people still expect to write a check on the spot.  You may decide to

1. Only take checks, keeping in mind that many people no longer have checks which means they have to send payment through bill pay and that can take some time to receive. 

2. Offer credit card payment, charging the customer 3% or absorbing the cost.

There are a couple things to keep in mind:

• If you plan on covering the cost to accept credit cards, make sure to add it to the cost of producing your product or service.  Remember, you want to make a profit and to make a profit you need to account for all of your expenses. 

• Chasing down receivables is not fun and it's time consuming.  This can also create a negative experience for both you and your clients.

Let's look at a different scenario:

A company provides monthly services to clients with the same recurring monthly fee.  They accept only one form of payment for monthly clients and that is ACH (money pulled directly from one bank account into another). 

If you want to do business with them, they require you to be set up on ACH. The cost is minimal, however, it can take 5 business days to get into your bank account. This option works because they never have to chase down the client, the clients like the convenience factor and they know exactly when they will receive their money. 

If you are business to business and deal with large companies or universities then it can take up to 6 months to get paid.  Most small business owners can not wait that long.  If you do business with smaller businesses then we would suggest you set up payment arrangements before doing business. 

Set the expectations. 

A retainer may be necessary and never feel bad about discussing payment!

The takeaway is this: carefully think about what kind of payment you want to receive. You don't want to spend your time chasing down receivables to save a buck, but at the same time, if you can reduce your costs AND keep your clients happy: you should!

Try to stay away from payment methods that will complicate things.  If you hate going to the bank and lose things easily – only take credit cards.  If you are meticulous with your records and want to take checks, then take just checks.  Make sure your bank will allow you to scan the checks in easily so that you do not have to make a trip.

As a side note: stay away from cash if you can.  We find that it never makes it to the bank!