If your small business relies on the payment of invoices to operate, then you know all too well have frustrating it can be to wait on a client to make a payment. Late or extremely past due accounts reduce the amount of money you have to handle everything from the lease and supplies/equipment to employee salaries and product production. In all actuality, a continued pattern of this from one or more clients could result in the demise of your business.
As failure isn’t something anyone wants to experience, finding a way to get invoices paid in a timely fashion is extremely important. Outside of automating your invoicing process, creating a clear payment agreement, and accepting multiple methods of payment, these solutions can increase your chances of getting paid on time.
Ask for Deposits or Payments Upfront
If you sold clothes at a retail shop or provided services like at a spa and someone came in to make a purchase, they’d have to pay for the products or services upfront. The same kind of payment requirements can be set up for organizations that invoice their clients. You can specify that you’ll need the payment in full before you provide them with the products or services. At the very least, asking for a deposit reduces your outstanding debt.
Don’t Charge Late Fees
It would seem that if someone knew they would have to pay more if they pay a bill or invoice after the due date, that they would want to pay it on time, but that isn’t necessarily the case. In most instances, if a client has missed their due date, they’re not going to be in a rush to pay the outstanding balance plus penalties and fees. This could cause them to procrastinate even further when it comes to paying the invoice back. So, it may be best to not charge late fees.
Offer Installment Options
If the outstanding balance on an invoice is sizeable, perhaps your client just doesn’t have enough to pay the balance in full by the due date. Offering an option where your clients can pay in installments could be a win-win situation for you both. You get small portions of what is owed to you over the course of a few months and your client can get the products or services they need without having to go bankrupt.
Supply Chain Financing
If you’re a supplier, you might benefit from supply chain finance options. A lot easier and more profitable than factoring, supply chain finance is essentially a digital platform for suppliers to use to get paid faster. Suppliers input information as it pertains to the invoices, purchase orders, and inventory. This data is then reviewed to determine investor risk. If the risk is minimal, the invoice is approved and suppliers can get paid before the due date by ACH, credit card, or wire transfer. When the invoice is due the client is instructed to pay the funds into a predetermined account. There are no interest fees involved, meaning it’s not a loan and can be a win-win for both the suppliers and their clients.
Credit Checks
You can reduce the risk of working with difficult clients who don’t pay on time (or skip the bill altogether) by requiring a credit check prior to the purchase of any products or services. This will allow you to pull their credit reports to see how many accounts they’re currently responsible for, their debt to income ratio, and their payment history which can help you to determine the risk of working with a particular client.
Shorten Due Date
Last but not least, giving a person too much time to repay something may seem like you’re doing them a favor, but it hurts you in the long run. When you set a due date for 30, 60, or 90 days out, it provides more time for the client to forget about the invoice and/or for other “more urgent” things to come up that prevent them from being to pay on time. If you’re having trouble getting your clients to pay on time, perhaps shortening the due date to 14 days or less would be ideal.
Without the timely payment of client invoices, your business eventually comes to a halt. Though getting them to pay the invoices is beyond your control, there are resources and tips like those described above you can increase the chances of the invoices being paid timely so that you can effectively manage your company finances.
