A New Look at Small Business Payment Plans

Posted by Marilyn Miller on April 24, 2020  /   Posted in Uncategorized

In a time of economic uncertainty like the current Covid-19 crisis, small business owners need to be flexible and creative. The ability to provide payment terms to customers is a great way to be stay competitive, but it comes with a good deal of risk.

Payment plans are more important than ever and need to carefully constructed, monitored and documented.

The first rule of any payment plan is that it must be in writing and must be signed by the customer. The plan should detail exactly how and when payments are to be made, and elaborate any consequences if payments are not made as agreed.

Personally, I believe every payment plan should begin with a down payment, even a small one. Getting some “skin in the game” is a good thing. Presently, a customer may not have the ability to pay today, but you will not know that unless you ask.

A review of payment plans is part of your overall accounts receivable management process, and must be done monthly, at least. Even in the best of times, you may have to consider altering plans to accommodate seasonal changes or downturns in business. You should be the one making the calls on this though, not the customer. When you see payment plans getting off course, reach out to your customer immediately. Keep communicating. 

How are payment plans affected in a tough time? What can you do about it?

As you are monitoring your plans and reach out to delinquent customers, here are some adjustments to consider:

  • Method of payment – If your customers are used to paying you in person, they cannot do that if your office is closed. Even when we reopen, it is likely you will want to limit person-to-person contact. Ask your credit card processor for a mobile solution. Set up an payment portal on your website. Direct customers to call your office with credit card information. 
  • Amount of payment – If a customer is having trouble making payments, you can temporarily lower payment amounts. Make sure the change is agreed to in writing. 
  • Deferred payment – You may be in a position to allow customers to skip a month or two, and add the skipped payment to end of the payment term. Again, as always, get it in writing.
  • Offer payment of full balance – Not everyone is out of work or out of business. You may have customers who are doing well, and now is a great time to offer a payoff. Your can offer to waive interest or offer a small discount to pay the balance in a lump sum. It is very important to communicate these offers as “limited time only” opportunities. 

Each time you make contact with a customer who is experiencing trouble making payments, you have an opportunity to solidify your relationship. Customers who know you care about them and are willing to work with them will stick around. 

 

 

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