By Debra Wright.
Getting paid by customers in a timely and efficient manner is definitely one of the most challenging tasks for many businesses. Without a healthy and steady cash flow, business operations may be derailed and a company’s capacity to grow, expand, or gain a competitive footing in the market may be affected. However, it is a fact that not all clients may be as vigilant in settling their invoices on time and on terms. For this reason, it is necessary for businesses to establish measures to manage the risk of customer defaults and ensure their cash flow stays in good shape.
Here are a few tips business owners can apply to collect accounts on time and ensure a good, steady cash flow:
- Send invoices promptly and accurately – Issuing invoices promptly and accurately is one of the basic things businesses must do to ensure payments are arranged in an efficient manner. Ideally, invoices must be sent as soon as the products or services have been delivered; however, that would still depend on the terms of trade you and your client have agreed upon. Do not forget to include important information, such as due date, purchase order numbers, descriptions of the goods and services, and, of the course, the fees.
- Incentivise payments – One solution to make sure clients do not defer payments is to consider offering discounts or incentives on early payments. An incentive scheme will motivate clients who are consistently postponing payments or waiting until the last minute to settle their accounts on time. This is certainly a win-win situation for you and your clients since they can enjoy additional savings while you get to manage a steady cash flow. However, make sure the terms for your incentive scheme are clearly stated to prevent customers from expecting discounts even when they’ve paid outside the stipulated terms or timeframe.
- Offer quick and easy payment options – It’s also advisable for a business to be more flexible with their payment options as this will make payments less of a hassle for clients. They can arrange their accounts at a method they are most comfortable with – be it via direct bank transfers, credit or debit cards, or cheques.
- Chase late payments judiciously – When pursuing late invoices, it is good practice to remain respectful and courteous towards clients. If you are contacting a customer via telephone, do not sound demanding or annoying; otherwise, you may lose a valuable client. Remind them politely that payment is overdue and enquire when you can expect it to be settled. Sending automated reminders for overdue invoices at reasonable intervals, typically in 15, 30, or 60 days, until the payment has been arranged is also recommended.
When Cash Flow Needs to be Accelerated
If a healthy cash flow still seems to be unattainable despite strong efforts to encourage clients to settle invoices on time, then using a simpler solution to your cash flow woes might be more sensible. One viable solution to cash flow problems is factoring.
Factoring, also called as invoice discounting, debtors finance or receivables finance, offers numerous benefits to companies experiencing a restricted cash flow due to late-paying customers or unpaid invoices. By selling outstanding invoices to a factoring company or a factor at a discount, you get the cash you need to help you keep your business running smoothly, hire or provide payroll to staff, or meet important business needs immediately. No need to wait for weeks or months for customers to pay.
When choosing a factoring company, though, make sure you do your research first. Some business factoring firms not only buy your outstanding invoices, they may also take charge of collecting payments from clients as part of their service, which is why looking into their reputation is important as it is an indication of professionalism and quality of services.
No matter the size of the business, payment delays can surely affect cash flow and the entire business operations. Make sure this problem doesn’t persist by following the solutions above for getting invoices paid on time.
About the Author:
Debra Wright is a writer and avid blogger who broke into the realm of online marketing before it was cool. Wright has contributed to various sites and covers a diverse array of topics, from business to finance.
