How can you get those customers who don’t pay on time to get into gear?
As it turns out, that question has been studied for decades.
For a while now the field of behavioural economics has been trying to tackle the truly big questions about why people think and act the way they do in relation to spending money.
Behavioural economics principles can explain a whole bunch of behaviours – including why your customers don’t pay up.
“In behavioural economics, we study how people make economic decisions,” Professor Lionel Page told The Pulse.
Page is the research leader of Queensland University of Technology’s Behavioural Economics Group, and he’s been looking at how the worlds of psychology and economic theory intersect.
“For a long time, economics was disconnected from psychology,” said Page.
“But in many cases, both were asking the same questions. For example, how do people make decisions about buying insurance or invest in a mortgage?”
Economists used to try to predict how people would make financial decisions based on two guiding principles:
But as it turns out, people make financial decisions based on a broad set of variables.
If that weren’t the case, then people simply wouldn’t give to charity as there’s no positive financial outcome for them.
We also do things like panic and make dumb decisions because we have too much information to take in at once.
That’s where analysing behaviour and applying psychological principles to economic decisions comes in – and it can help you get paid faster.
Using tech solutions like MYOB PayDirect Online can help you get paid faster, but there are other principles you can use.
The first, Page said, was to use the idea of ‘social norms’.
“That’s using social influence by placing the behaviour of people who are different from the norm in relation to other people who are not,” he explained.
“For example, if 90 percent of your customers may pay on time, it’s a matter of making it known to debtors that ‘it’s very important that our customers pay us on time, and 90 percent of customers pay on time, so we’d appreciate if you could be one of them’.”
This information can be forwarded in an email before threats to pay up or else – and can be effective.
The UK’s famous ‘Nudge Unit’ used a similar principle when trying to get people to pay taxes.
By highlighting to those that didn’t pay that they were in the minority in a letter, they were able to increase the number of people who paid their taxes on time by 5 percent.
While that may not seem huge, it was a very worthwhile return on effort because the ‘cost’ was simply a letter.
Page also suggested that small business owners could lean on a supplier relationship when chasing payment.
“A non-monetary motive can be the social ties you’re building with people,” he said.
“People are sensitive to it – they feel they have a friendly and respectful relationship and don’t want to be judged.”
Page said while a ‘contractual letter’ saying pay up or else may be effective, it also risked losing a customer in the longer term.
“You could say ‘in order for us to continue to provide you an ongoing service like we have for X number of years, it’s very important for us to be paid on time’,” he suggested.
“You remind the customer of this bond.”