Cash is king. For any small business, nothing is more important than cash flow. Generating new sales is fantastic; however, late payments for those sales can have a negative impact on the business and its ability to operate. Therefore, it is essential to get paid on time. Here are a few tips to avoid the hassle of late customer payments and enjoy better cash flow.
- Invoice Immediately
This seems like a no-brainer, but the more frequently you invoice, the more frequently your customers will pay. We see too many companies delay sending out their invoices which almost always results in a delay in payment. Typically, a customer pays based on terms when the invoice is received; therefore, it is critical to get that invoice to them as soon as you have delivered the product or completed the service.
- Send Reminders
Many companies send out invoices and then never follow up until the payment is past due. It is important to be proactive and gently remind customers of outstanding invoices and upcoming due dates. Lack of follow up can establish a negative pattern whereby customers do not feel obligated to pay in a timely manner. Perhaps the invoice falls through the cracks and the customer forgets to pay. Either way, a quick reminder can help avoid the pitfalls with delayed payments and expedites collection of Accounts Receivable.
- Offer Incentives or Discounts for Early Payments
A simple way to get customers to pay sooner is to offer early payment discounts. Incentives like 2% / 10, net 30 can help improve cash flow. In this example, 2% refers to the discount offered on the invoice if it is paid within 10 days. Otherwise, the full price is due within normal terms (30 days in this case). Another incentive to help collect Accounts Receivable quicker is to enforce penalties for late payments received after the agreed upon terms.
- Limit Payment Terms
Many times, a company offers 30, 45 or 60-day terms to their clients because they believe that is the industry standard or the way things have always been done. Don’t assume that you always have to offer extended terms to your customers. Send out invoices with terms of “due upon receipt” or “net 10 days” and see what happens. You may not get paid within those terms but it never hurts to try. Also, many companies simply pay within the terms stated on the invoice so don’t be afraid to limit terms offered to your customer.
- Consider Accounts Receivable Financing
Accounts Receivable Financing allows a company to borrow against their existing B2B Accounts Receivable. Instead of waiting 30, 45 days or more for your customers to pay, you get immediate access to cash the day you invoice.