Proper cash flow is the lifeblood of any small business. Moreover, poor cash flow management is the main reason why 82% of small businesses go under. Late invoice payments account for a great deal of cash flow issues, and dealing with clients who fail to pay on time is among the biggest challenges small business owners face. Things take a turn for the worse when these late payments start affecting business loan payments as banks and creditors don’t care why their regular monthly installments haven’t been settled. It’s the small business owner who gets penalized and this usually leads to poor credit ratings and higher interests in the future. Here are a couple of effective tips for preventing and managing late payments.
Discuss payment terms in advance
First things first, so during the price negotiations, make sure to establish payment terms. Many small business owners tend not to insist on discussing this important matter in order not to be considered too pushy. But, this approach can complicate things along the way, which is why stipulating the time frame within which payments should be made is of critical importance. Some bigger and more important clients will most certainly demand longer payment terms which might even reach as many as 90 days. It’s a good idea to try and offer a lower price in exchange for shorter payment terms. Another essential tactic is to set up a payment plan, and include terms of service, according to which, for example, if a client is 5 days late, they get a warning, while a 10-day delay results in a late fee, and finally after 20 days the business relationship is terminated. Offering multiple payment options as well as finding a financing fees partner can be beneficial for both parties as these two possibilities provide additional flexibility.
One of the biggest mistakes business owners make is procrastinating with sending invoices. In order to speed up the payment process, it’s crucial to send out an invoice as soon as the project has been completed. Most small businesses are usually a one-man band and their founders take care of invoicing and payments too. That’s why it’s very easy to lose track of billing and forget to send an invoice to a client if it’s not done right away. Such a hectic approach to invoicing can cause entrepreneurs to lose not only their profit but also their reputation because it happens that they start hunting down clients who haven’t paid the bill that was never sent to them.
Remind clients about an approaching deadline
Although being flexible when it comes to payments is desirable, especially when there’s potential for additional projects, some clients are in the habit of overstaying their welcome. One way out of this unpleasant situation is calling their attention to the fact that the payment deadline is getting closer. Since this isn’t a warning but just a reminder, the tone should be friendly and not too pushy. In many cases, late payments aren’t intentional and they’re the consequence of an invoice being buried under a mountain of paperwork, so clients will be able to handle everything in a timely manner if they’re notified.
Think about partial payments
This suggestion may seem as being out of tune with other tips, but it can be used in certain cases when regular customers can’t afford to pay the whole amount instantly. Allowing them to pay their bill partially will both ensure that they pay for the services, as well as help build loyalty. They will most certainly appreciate this gesture of goodwill and reciprocate by referring the company to their friends and business partners and by staying loyal. However, it’s worth mentioning that this method should be reserved only for situations when clients are strapped for cash, so a partial payment should be considered an exception and not a rule.
Resort to legal options
After everything else has failed, it’s time to resort to legal options. This is an extremely unpopular solution, but if a client fails to pay, makes up excuses, or is obvious that they won’t settle the bill anytime soon, there’s no reason to give up on your hard-earned money. It’s true that legal proceedings are extremely expensive and time-consuming, but sometimes it’s enough to send a legal notice to a non-paying client and fix the matter right away. However, if this measure doesn’t work, then hiring a lawyer who is willing to work for a contingency fee, which means that there’s no need to pay anything in advance, can be the right move. Instead of that, they get paid when they win the case. It’s important to understand that taking legal action against a client who fails to pay comes only after all other alternatives have been exhausted.
The best way to eliminate late invoice payments is to prevent them. These simple tips can help you sort things out before problems appear.