It is hard to turn down a client, or even decline future business because of a few late payments. However, many customers have no idea of the potential disruption they cause to your cash flow when they pay their bills late. What can you do to encourage on-time payment on your outstanding accounts receivable and turn your unpaid invoices into cash?
Initially ask for payment up front – This may be a daunting prospect for many small businesses who are keen to increase sales by taking on new customers, but it may be necessary to keep optimum cash flow and enable you to pay your bills on time. Once you have established a good relationship with your customer, you can then consider offering terms. Any new customer unwilling to consider payment up front may potentially create issues for you anyway. It is important to establish a mutual trust. Once your customers trust you to deliver, and you trust them to make timely payment, the relationship will be much more comfortable for both parties.
Keep up to date with billing – It is worth considering an automated process when it comes to billing. Small mistakes in invoices can cause delays, which can have a direct adverse effect on your valuable cash flow. Automated invoicing means seldom missing billing for work you undertake.
Discontinue relationships with chronic bad payers – Don’t be afraid to sever ties with bad paying customers. It is sometimes hard to walk away from what you consider to be a valuable customer, but if they consistently pay late, they are damaging your business. It is important to keep your client informed on regular occasions that their late payments have been noted so when you refuse to take on any more business they will not be surprised. Since social media plays such a huge part in our everyday lives, you do not want to encourage negative comments by making rash decisions.
Consider charging a fee for late payers, or encouraging early payment with a discount. The approach you take will depend upon your client. Which is more effective? Charging a fee for late payers, or incentivizing early payment by offering a discount? Generally, if you know your customer has a tendency to pay late, it is a great idea to keep the relationship positive. If you think offering a discount will encourage early payment it is worth trying that approach.
One reliable method of getting your invoices paid faster is to consider invoice factoring. Factoring helps your business by providing access to your cash now, using your outstanding invoices as collateral. Consider your cash flow challenges and decide if any cash flow deficit is costing your company more than the potential cost of accounts receivable funding.