You start a business because you’re passionate about what you do. You stay in business because you’re good at it. However, no matter how much you contribute to your industry or how much you excel, you still face challenges managing cash flow. The time between the date you submit your invoices for payment and the time you receive payment often impacts your potential for growth.
Understanding Terms
Net is the amount of money due on each invoice. While it would be best to receive payment as soon as you deliver goods or services, most businesses allow clients a number of days between the date on the invoice and the last day they can pay the net. Usually that time is 30, 60, or 90 days.
Why So Long?
Your clients placed an order and you provided what you promised. Why should you give them up to three months to pay for it? Businesses allow clients time to pay for a variety of reasons.
Clients are often more willing to make a purchase when they don’t have to pay up front. Net 30, 60, or 90 is like a short-term loan that doesn’t require a credit check or cost interest. For larger businesses, an extended term gives them time to re-sell merchandise or realize a profit from putting equipment to use.
The trap occurs when the client stretches payment terms as much as possible. They may question whether they owe 30, 60, or 90 days from the date on the invoice or that many days after receiving their invoice. Businesses lose when they’re caught in the net 30, 60, 90 trap.
Offer Incentives
Use discounts and promotions to entice customers to pay early. When customers pay late, charge interest. Make sure terms are clear when clients place their order and put them in writing on your invoices.
Clarify Requirements
If you expect payment 30, 60, or 90 days from the date on the invoice, clearly communicate that to clients. Mark a date due on every invoice you send next to the total. Be specific about what their total becomes if they start to owe interest, so they can see what late payments will cost them.
Don’t Extend the Same Terms to Everyone
If you have repeat clients who place profitable orders, it makes good business sense to give them time to pay. A one-time buyer might not be worth the risk. Your business is not obligated to offer new customers the same credit you offer your best clients. If you are unsure a customer will pay your bill, one option is to require payment at the time they place the order.
Factor Invoices
There are times you know your customers will pay, and you make more money if you give them time, but you need cash to continue doing business. Escape the net 30, 60, 90 trap by working with a factoring company. They’ll pay quick cash for your invoices without any hidden fees so you can stop watching the calendar and get back to running your business. Learn more when you contact Bay View Funding today.
