Establish a Set Protocol for Dealing with Late Payments
Many small businesses falter with collecting on late payments simply because they lack a set procedure for addressing this problem. Haphazard collection efforts, such as a random phone call or letter, here and there, will not cut it. You must establish a process that it applied each and every time you are dealing with a late payment. This way, you are on top of getting these invoices settled, you will get your money sooner rather than later, and you decrease the risk of never collecting at all. It can be whatever works for you, but regardless of the system you set up, you should begin efforts to reconcile the problem as soon as possible after the payment is late.
Get Accounting Software
This one tip may seem obvious, but many small business owners may still be relying on handwritten bookkeeping or very basic computerized spreadsheets. You may think that you have it under control, that the current system is fine and that you do not need computerized management of your receivables. But, chances are, you can benefit greatly from making the switch. You will be able to keep better track of the age of invoices and payments. You can set up contact templates that are automatically mailed to customers at set times, such as a certain point after an invoice is past due.
Screen Clients Carefully
Before extending credit to any new customer who is looking to purchase your products or services, be a bit more careful in giving out that credit. In an attempt to get as much business as possible, it is easy to ignore this tip, but the potential financial headaches it can save down the line are well worth it. If the customer ends up posing problems as far as payment, you are not accomplishing your goal of increasing your profits. Run credit checks; devise an application that new customers must fill out. Consider limiting the credit amount initially to gauge their payment habits and then extend if they have established a good payment record. The more you know about a customer’s financial situation before you begin working with them, the fewer problems you will encounter down the line.
Dealing with the Cash Flow Crunch
If you are experiencing cash flow issues due to late paying clients, invoicing terms or other issues, there are some solutions to the problem. One such avenue is using an accounts receivable finance company, which purchases your invoice, and you get the cash fast. Upfront payment is not the full amount, but a large percentage. Then, the client is responsible for paying back the financing company and you will receive the balance minus their fee. Of course, you will not be able to hand over the invoices of your problem clients, only the ones who have a timely payment history.
Kelli Cooper is a freelance writer who blogs about everything business.