I get the same call every week. Business owner, frustrated as hell: “Jim, my customers just won’t pay on time. What am I supposed to do?”
Here’s what I tell them: Stop blaming your customers. Start looking in the mirror.
After 40 years of helping businesses fix cash flow problems, I can tell you this – 90% of customer payment problems are created by the business owner, not the customer.
You’re being too nice. You’re not enforcing your terms. You’re making it hard for people to pay you. And then you’re wondering why nobody pays on time.
Let me show you the three payment problems I see everywhere, and how to actually fix them.
Why you’re creating your own payment problems
Before we get into the solutions, you need to understand something: your customers are training you, not the other way around.
Every time you accept a late payment without saying anything, you’re teaching them that your payment terms don’t matter. Every time you say “just this once” when someone wants to pay 60 days instead of 30, you’re training them that your terms are negotiable.
Then you wonder why they keep paying late.
I had a manufacturing client – always complaining about slow payments. Then I looked at his receivables. Customers routinely paying 75-90 days on Net 30 terms. When I asked what he did about it, he said “I don’t want to damage the relationship.”
What relationship? They’re using your money for free while you pay credit card interest to cover operations. That’s not a relationship – that’s abuse.
Problem #1: You’re not collecting according to your terms
Let me guess. Your terms say Net 30, but customers pay in 60-75 days. You tell yourself “that’s just how business works.”
It’s not.
The problem isn’t your customers – it’s that you’ve never enforced your terms. You send an invoice and hope for the best. When payment doesn’t come, you wait another week. Then another. Then you send a “friendly reminder.”
Here’s what actually works:
Day 31: You call. Not email – call. “Hi, this is Jim from ABC Company. Your payment was due yesterday. When can I expect it?”
Day 45: Another call. “We still haven’t received payment. This account is now 15 days past due. I need payment by Friday.”
Day 60: Formal letter. “This account is significantly past due. Unless payment is received within 10 days, we’ll be reviewing our relationship.”
Day 75: Collection agency. No more Mr. Nice Guy.
Most business owners never get past day 31 because they’re afraid of “damaging the relationship.” You know what damages relationships? Not getting paid.
Problem #2: You’re giving terms to customers who haven’t earned them
This one’s going to hurt, but somebody needs to say it: not every customer deserves payment terms.
New customers? Make them prove they can pay before you give them 30 days. Customers who’ve been late before? Cash on delivery until they earn your trust back. Big orders from customers you don’t know well? Require deposits.
I see this all the time. Business owner gets excited about a big order, ships everything, then spends six months trying to collect. That $50,000 sale isn’t worth anything if you never get paid.
Here’s my rule: For any order over $5,000 from a customer you’ve worked with less than a year, require 50% upfront. For orders over $25,000, require progress payments.
“But I’ll lose the sale!” No, you’ll lose customers who weren’t going to pay you anyway. The customers worth having will understand.
Problem #3: You’re making it hard for people to pay you
This one kills me. You complain about slow payments, then make paying you as difficult as possible.
Paper invoices that take a week to mail. Payment processes that require cutting checks. No online payment options. Invoices that are confusing or hard to read.
Then you wonder why people don’t pay quickly.
Make paying you the easiest thing your customer does all day:
- Email invoices immediately when work is done
- Include a “Pay Now” button that works
- Accept credit cards, ACH, whatever they want to use
- Send invoices that are clear about what they’re paying for
- Follow up the next day to make sure they got it
The easier you make it to pay, the faster you get paid. Simple.
The collection problem you’re creating
Let me tell you something about collections: avoiding collection calls doesn’t preserve relationships. It destroys them.
When you don’t call about overdue payments, customers think either:
- You don’t need the money (so they’ll pay someone else first)
- You’re disorganized (so they don’t take you seriously)
- You won’t do anything about it (so why bother paying?)
None of those help you.
Professional collection isn’t personal. It’s business. You did the work, you deserve to be paid. Customers who respect you expect to be held accountable. Customers who don’t respect you will take advantage of your niceness.
I’ve made thousands of collection calls. You know what I’ve learned? Most people pay when you ask. They just need to be asked.
Why payment problems compound
Here’s the math that’s killing your business:
If you have $100,000 in receivables that should collect in 30 days but actually take 75 days, you’re carrying an extra $75,000 in working capital. That money has to come from somewhere – usually credit cards at 18-22% interest.
So you’re paying $13,500 annually in interest to finance money that customers owe you. Money you could collect if you just picked up the phone and asked for it.
But it gets worse. While you’re carrying their receivables, they’re earning interest on money they should have paid you. You’re paying interest on both ends of the transaction.
That’s not customer service. That’s stupidity.
What actually works for Michigan businesses
Michigan businesses have some unique payment challenges. Automotive suppliers dealing with 90-day OEM payment cycles. Construction companies waiting for developer financing. Seasonal businesses with customers who want to pay “when the season starts.”
These aren’t excuses to accept poor payment terms. They’re reasons to be smarter about protecting your cash flow.
If you’re dealing with long payment cycles: Build the financing cost into your pricing. If you’re going to carry receivables for 90 days, charge accordingly.
If you’re seasonal: Require deposits during slow seasons. Summer tourism businesses should collect deposits during winter planning. Construction companies should require progress payments tied to milestones.
If you’re in manufacturing: Use factors or receivable financing to convert slow-paying OEM receivables to immediate cash. It costs 2-4%, but that’s cheaper than credit card interest.
Stop being the business bank
Here’s what’s really happening when you let customers pay late: you’re running an unprofitable bank.
Banks charge interest when they loan money. You’re loaning money for free. Banks check credit before lending. You’re extending credit to anyone who asks. Banks have collection departments. You send “friendly reminders.”
No wonder you’re having cash flow problems.
Your job is to provide products or services, not to finance your customers’ operations. If they need financing, they can get a loan. From an actual bank.
Start fixing this today
Don’t try to fix everything at once. Pick one thing and do it consistently.
This week: Call your five biggest overdue accounts. Just call and ask when they’re planning to pay. You’ll be amazed how much money shows up just from asking.
Next week: Speed up your invoicing. Bill the day work is done, not whenever you get around to it.
Week three: Add online payment processing. Make it possible to pay invoices with one click.
Week four: Start requiring deposits on large orders from newer customers.
Most of this costs nothing but time and backbone.
When to get help
Sometimes you need professional help with collections:
- When you have more than $25,000 in overdue receivables
- When customers owe large amounts and aren’t responding
- When you’re spending more than five hours a week chasing payments
- When you just can’t bring yourself to make collection calls
Collection agencies typically cost 25-35% of what they collect, but they collect money you probably wouldn’t get otherwise. More importantly, they send a message to all your customers that you’re serious about getting paid.
The bottom line
Good customers want to pay you. They just need clear expectations and easy payment processes.
Bad customers will take advantage of you if you let them. Don’t let them.
Payment problems aren’t customer problems – they’re management problems. Fix your systems, enforce your terms, and make it easy for people to pay you.
Your cash flow will improve immediately.
Need help with payment problems?
If customer payment issues are causing cash flow problems in your business, let’s talk. I’ve been helping business owners improve collections for 40 years.
The consultation is free, everything stays confidential, and you’ll walk away with a clear plan for getting paid faster.
(248) 957-0300 – I answer my own phone.
Stop being your customers’ bank. Start getting paid like the professional you are.
