For most businesses to actually stay in business, they must adopt a model where credit is extended to customers, who are then expected to pay the bill sometime in the future after goods and services have already been delivered—always great for the customer, not always great for the business. Until that money is paid, a sale is really not a sale ,and if you have slow payers or non-payers, you put a serious pinch on the cash flow necessary to run your operation. Here are some tips to collect on receivables in a more timely, smoother fashion.
Develop Contacts
While your interaction with customers is primarily business-oriented, it does not hurt to make some personal connections with the people who can get your invoices paid. Make an effort to familiarize yourself with the people in the accounts payable department—get to know a little bit about their personal life. This way, when payment issues arise, you know who to go to and you have some friendly rapport to break the ice.
Invoice Immediately
The sooner you get the bill out, the sooner money will be in hand. As soon as a good or service has been delivered successfully, get that bill out to the customer. Do not tend to invoices every two weeks. All those days unsent invoices are piling up is days that you could have checks coming in, but do not.
Offer Early Payment Incentive
If your margins can handle it, consider offering discounts for early payments; perhaps you can offer a 2 percent discount if the customer pays the invoice within 10 days instead of 30. While you naturally want to maximize profits, poor cash flow, rather than poor profits, can be a bigger kiss of death for a business.
Do Not Sit on Late Accounts
Having worked for a collection agency for a brief spell several years ago, the ages of some of a client’s past due invoices absolutely amazed me at times. The amount of money that they just made no serious effort to collect on was astounding. It is a stark reality that the longer an invoice goes unpaid, the less likely it is that it ever will. If you are like many business owners, the idea of approaching clients about late payments makes your stomach flip a bit—it can be an uncomfortable discussion to have and you may worry about losing their business. But, provided you met your end of the transaction, you have the right to pursue that money as soon as that bill is one day late. You do not have to be aggressive or jerky about it; a friendly phone call to make sure the bill was received is perfectly reasonable.
Be Consistent with Collection Efforts
If you have past due invoices, it is important to establish a set process to be followed for collecting on these accounts. By having a set plan in place that will be followed every time, late payments will be taken care of much sooner.
What to Do about Poor Cash Flow?
If your invoice situation is putting a dent in cash flow, you do have some alternatives to get that much-needed money immediately. One such option is to work with a company that deals with accounts receivable finance; these companies will purchase your outstanding receivables, providing you immediate funds. Of course, these services come with a fee, so you need to carefully weigh this when deciding whether to utilize them.