Why Customers Need Different Payment Options
One of the keys to generating loyalty with your customers is to understand them. Depending on what types of customers your business services, they will want or need different types of payment options and terms.
Individual consumers are different from small businesses, and big businesses are different from small businesses, so a one-size strategy definitely does not fit all.
Let’s walk through these three types of customers with suggestions on what might work for small business owners trying to sell to each.
Selling to Individuals
If you sell to individuals, know that these consumers are shelling out their own money and the pocketbook nerve can be sensitive! You can dull the sting of a high-ticket item by breaking it into payment options (late-night infomercials have been raking it in by doing this for years!).
If you are you trying to sell something for $1,000, you can break that up into three monthly payments of $333 or boost it to $347 so that you’re able to charge a little more for giving your customer the convenience of a payment plan. It can be a win-win. The customer is able to budget and justify the payments and you get more money for the same product or service.
Alternatively, you can incent full payment in advance by offering a discount if people pay in one lump sum or before a certain date.
When selling to individuals, you will also need to be able to process credit cards. You can set up a PayPal account and/or open a merchant account. You may want to have both, as individual buyers are often comfortable paying with their PayPal account.
If you need a mobile payment option, you may want to consider Simplify Commerce by MasterCard, which is flexible, easy to set up, and works with other payment systems like Apple Pay, with Android Pay rolling out shortly. Other popular mobile payment apps include Google Wallet and Square.
Selling to Small Businesses
Very small businesses act more like individual consumers than larger small businesses. It’s a differentiation that isn’t discussed much. A solo business owner IS the business and depending on where the business is in their growth, the owner may be making decisions more like a consumer than a business. The key here is to understand the mindset of your customer and work with them accordingly.
Small businesses that have been in business for several years or have several employees will act more like what you would expect from a larger business. They may or may not have a separate purchasing function. You will need to provide them with proper documentation, send itemized invoices, and negotiate payment terms. Fifteen to 30 days is reasonable.
Pro tip: Make sure that you have a formal sign-off on the terms so that everyone is on the same page.
Selling to Large Businesses
You may feel like you have hit the motherlode when you land your first “marquis” account—aka, that big-name client that will make your sales process easier going forward when you drop their name. While there are many benefits to working with big businesses, on the payment side, one might say, “Danger, Will Robinson!”
Big companies will have procurement departments and purchasing managers to deal with. Most likely, your payment won’t be a top priority for them—but it may be a sizeable chunk of your revenue.
When a very small business works with a big business, it can cause some major stress for the small business. Here’s how you can navigate these choppy waters:
- Arrange for some percentage of the anticipated total amount to be paid upfront, so that you are not out of pocket for the whole amount. For longer projects, add in milestones that trigger payments when reached.
- Negotiate the shortest possible terms. Larger companies often expect 60 days. Try to get them to agree to 45 days. If their policy is 45 days, try to get them down to 30 days.
- Identify the purchasing contact who will be processing your bills and build a strong relationship with them. You may need to call in a favor at some point.
- Learn the internal process for the company, so that you can figure out where the problem is if you have a problem. Chances are good that an invoice will get lost in the process at least once.
Understanding the different types of customers that you might work with will help you with your business planning, and can save you a lot of heartburn and also engender loyalty by servicing them in a way that works for their business, too.
Each customer is different and will definitely have their own quirks, but learning how their business works can help your small business have a better (and more profitable) relationship.