One of the key problems of many businesses is that their clients or customers don’t pay their invoices in a timely manner. This can arise from a number of reasons but the most common one being that your client or customer is having cash flow problems. There are other reasons, some of which are created by the way you do business yourself. Here is a list of strategies you can use in your business to get paid faster:
Strategy 1: Having a credit application process for all new accounts
In my experience very few small business owners ask for any information from new clients but rather are so delighted to have them that they don’t bother with any formalities. The benefit of an application is that you can ask for other business references, you can set a spend limit and at the same time set out your payment terms in a clear and concise manner.
Strategy 2: Offer discounts for prompt payment
I’m not a fan of discounts per se but if you are having issues with late payment of invoices then you could offer an incentive for prompt payment. Most people like a bargain and a reduction in the amount they have to pay maybe the encouragement they need to pay earlier.
Strategy 3: Charge an interest factor for late payment
Now you do need to advise this up-front before you invoice. This would be included in your terms and conditions when they first do business with you. Or alternatively, you could put wording on each invoice that interest of a specific percent will apply to late payments. And then, you must apply it in all cases. Consistency is paramount to ensure your clients or customers understand the penalties they will suffer for late payment.
Strategy 4: Make sure you issue your invoices promptly
When a client or customer receives an invoice late, they will consider that you don’t need the money in a hurry and will put off paying you. Some may have buyers’ remorse and argue that you haven’t provided what they asked for and refuse to pay.
Strategy 5: Make sure your accounting records are up to date on a daily basis or at most weekly
You need to know exactly who owes you money and who you need to chase up for payment.
Strategy 6: Follow up after you’ve issued the invoice
Send reminders, make phone calls and send statements regularly. It is often the frequent phone calls that result in payment.
Strategy 7: Use a debt collection agency if you’re not getting any results
Sometimes, just a call from someone outside your business is enough to get your invoice paid.
Strategy 8: Appoint a lawyer to send a legal letter to your recalcitrant clients or customers as the first step to taking full legal action for payment
This is always a last resort and the challenge is always whether to spend money on lawyers when you may not get any money paid to you at all and so are worse off.
Strategy 9: Set aside time every day or at least once a week to follow up outstanding invoices
By doing this regularly, your clients or customers will know that you’ll be chasing them up and will do the best they can to pay you before they get yet another call from you.
Strategy 10: Make sure that you are providing top quality products and services and that your service is top notch
People are much happier to pay promptly when they are getting good service from their supplier.
The key is to keep on top of your invoicing. Make sure your accounts are reconciled and have time set aside every day or, at worst, every week to follow up. Make decisions about what steps you need to take for each client or customer so that you get paid as promptly as possible.