Ann Gibbard shares some tips on how to prevent Bill Shock.
When a customer receives a bill that differs from what they expected, they may experience bill shock. As a result, they may question the bill, take much longer to pay it, or worst-case scenario does not pay it at all.
Preventing bill shock is mostly about good communication. Here are some tips:
Quotes/Estimates
Get a quote or estimate approved before you start the work. This may be verbal but should be written for any significant work. The quote or estimate should outline what is included in the price, anything that is explicitly not included in the price, when the customer will be billed and when payment expected.
Terms of Trade
Terms or trade outline the contractual agreement between the supplier and the customer. It includes details of what happens if there is a dispute, or non-payment among other details. If you are offering any form of credit terms (i.e., you are not paid on delivery or in advance), you should have your terms of trade agreed by the customer. This could be signed as part of a new customer form, or as an attachment to a quote/estimate.
Spreading out payments
If you are working on a project over a period, e.g., building a house extension, building a new website, you should be invoicing throughout the project. This makes each invoice smaller and more manageable for the customer, as well as improving your cashflow. You could have a deposit, progress payments and then a final invoice. Your final invoice should always be no more than 10% of the project as these are the invoices least likely to be paid.
Get any variations agreed before you do the work
If you are asked to complete work outside the scope of the signed quote/estimate, let the customer know the approximate cost of the additional work, and get written approval. This could be in an email or through a variation quote or estimate document. Get this agreement before you do the work, or you could end up carry the cost. Invoice any variations throughout the project – don’t leave these all to the end.
Having clear invoices
Be clear on your invoice what you are asking the customer to pay for. If it relates to a quote or estimate, add the relevant quote/estimate number. If it includes variations to the quote/estimate, split these out from the original price.
By investing time up front to communicate well with your customer prior to them receiving your invoice, you will spend less time defending your invoice, answering questions, and chasing payments.
Ann Gibbard is a Business Success Partner with Oxygen8 Consulting. For help with growing your business or improving its profitability, preparing your business for sale, or for a free Business Diagnostic, contact Ann at ann@oxygen8.co.nz or 021 682 014.