Invoice collection is never a fun task. Many companies have a department dedicated to the onerous task, but for some it may be a one-man show. The many responsibilities undertaken by small business owners can sometimes take their toll. Faster payment obviously increases cash flow so what can be done to encourage faster payment? Let’s consider some tips to make the process easier.
Organization – Do you know which invoices are outstanding, and where they are in the payment process? This sounds like a simple task, but when your many priorities include the other aspects of running the business, it is easy to let invoices slip in the scale of daily responsibilities. Make sure your invoices are well laid out and easy to understand. A code that means something to you may have little relevance to your customer. Invoices that simply and clearly lay out the goods or services delivered will not get stuck in the system, which can delay payment further. Lastly, an invoice that has not been delivered will not be paid! Make sure and send your invoices out in a timely manner. Good organization will help you take care of your customers and keep them coming back for more.
Terms - Are your customers aware of their payment terms, and did you clearly define them in a signed document? Customers should be constantly reminded of payment terms in estimates as well as invoices. If you have different payment terms for different customers, make sure you keep it straight for accounting purposes. It can become confusing if you are not sure of the terms you offered, and did not get it in writing. Chasing invoices that you believe to be past due when they are not will only irritate your customer. Should your customers’ pay late, have you notified them of penalty fees, and do you enforce these fees or let them slide? Do you request any form of advance payment? This can be helpful when establishing trust with new customers.
Types of payment – Have you clearly defined the types of payment you are prepared to accept? Credit card payment makes life simple for many of your customers. Consider the cost of credit cards against the cost of delayed payment when it comes to working capital management.
Follow up – Do you have a system in place for when payment is late? Create an effective system and use it every time. Just because a customer is loyal does not mean they can get away with paying late. Reminder emails should be followed up with a call that is courteous but firm. Make sure you keep a record of all correspondence should you need it for collections purposes.
Don’t neglect your working capital, be organized and aware of outstanding accounts receivable to ensure you have enough cash to run your business. Many businesses that generate commercial invoices, and have cash flow issues are turning to an alternative commercial funding solution that not only helps them with their working capital, it also manages invoice payment. To find out if alternative financing could help your business, Bay View Funding has created an informative video explaining the benefits. Removing the responsibility of chasing payments can free up valuable time needed to concentrate on delivering the best service possible to your customers.