Are you a business chasing invoices? Does the process exhaust you and cause cash flow problems when your client does not pay on time?
Cash flow is the bread and butter of any business, whether a startup or an enterprise. Without consistent cash flow, a company can become subject to uncertainty in executing regular business operations and incur huge losses. This situation might cause a decrease in organizational assets and an increase in liabilities. It could also lead to liquidation. Therefore, it is essential for companies to monitor their cash flow and get all their due invoices paid on time.
According to research by Dun and Bradstreet, insufficient cash flow is the primary reason for around 90% of Small-to-Medium Enterprise liquidations, and only 38% of business invoices get paid on time. They say prevention is better than cure, and that is what this article puts forth. In this article, we will present six techniques on how to ensure that your invoices get paid on time and prevent the hassle of chasing unpaid invoices after the passage of payment deadlines.
1. Check the profile of the client:
Customers and clients are essential assets to a business. Nevertheless, before signing an agreement with them, companies must perform a background check on their potential clients. Before entering a business deal with a client, organizations should check whether the client has met payment deadlines in the past. Companies should be on the lookout for any history that points to the customer being unwilling to pay on time. If you have met all the requirements and deadlines, and the client is still not clearing the invoice, it could mean many things, including:
- The client is delaying payment because it’s a habit.
- One contributing factor which happens more often than you think could be that the client is looking for payment negotiation.
- Another possibility could be that the client is incapable of meeting the payment deadline. It is possible that the customer is short on cash flow or because they might have incurred a loss in their business.
A background check and respective company policy would help you avoid dealing with such clients in the first place and save your time, energy, and resources.
2. Define your terms and conditions comprehensively:
Not defining your payment terms is one of the loopholes you could leave. Not paying attention to how you lay out your terms and conditions in front of the client enables the other party the liberty to twist deals and contracts. Therefore, when dealing with a client, draft your agreement carefully and ensure that you leave no exploitable ambiguity. Below are a few examples of what you should include in your contract.
- Establish appropriate payment deadlines.
- Include a penalty or the legal actions you could take in case of late payments.
- Specify that late payments may affect the quality or provision of product or service.
- State that late payments will result in no business activities between the provider and the consumer in the future.
When drafting contracts, it is advisable to consult with a legal team and remove the ambiguities in your agreement and establish necessary terms and conditions.
3. Introduce flexible payment methods:
One of the hindrances your client could be facing in clearing your invoice can be your payment methods. Currently, payment options are vast, ranging from traditional bank transfers to online payments. If the payment options you provide are not flexible, they can result in late invoice clearance. For example, you only support online transactions, and your client prefers traditional bank transfers. Therefore, ensure that your company provides flexible payment options to cater to the needs of a variety of clients.
4. Ensure timely and quality delivery:
One of the reasons your clients could be unwilling to clear your invoice can be that they are not satisfied with your delivery. One way to counter that is by involving the clients when your product or service is underway. In this way, you can assure the clients that the product or service you supplied complies with your agreement. You should always ensure that there are no mistakes at your end and that the product or service you dispensed is timely delivered and up to par. In this way, when clients do not clear invoices in accordance with the payment deadline, they do not get an opportunity to point their fingers at you.
5. Use Automated Payments:
In this modern era of innovation, science and technology have accomplished what the human mind could not even have imagined just a few decades ago. Technology and automation have paved their path in almost every field of work. As a business, you can also benefit from the fruits of technology. A new method of getting paid on time involves automated payments or invoice clearance. Automatic payments work by giving the consumers an option to have the due amount charged from their debit or credit cards automatically on a fixed day each month, with the feature to unsubscribe. This automatic payment technique is a great way to avoid the hassle of late payments.
6. Follow up with the client:
Following up with the client about the status of the invoice can help reduce late payments to a large extent. There are a number of reasons why follow-ups are crucial. A few of them are listed below:
- Your clients might have forgotten about the invoice because they were busy or occupied. Following up could remind them that they have unpaid invoices to clear.
- Your client is delaying payment because it’s a habit or a company policy. Following up with the client would prompt them to clear your invoices sooner than later.
- Your client might have put your invoice on a low priority. Following up would nudge them to put it on a higher priority.
- There could be a mistake on your end. It could be possible that the client did not receive the invoice, or there could have been some errors on the invoice. Sometimes a recording error occurs, and it’s also possible that the invoice was paid but not recorded correctly.
One way to counter this is by sending your clients reminders daily or weekly that they have invoices to process. You can manually send the reminders by using a template, or you can also employ automation for this purpose. Ensure that your reminders sound polite and professional and not derogatory. Often sending reminders to the clients solves the problems related to late payments.
Concluding thoughts
For any organization operating at a local or an enterprise-level, cash flow is a significant aspect that displays its financial position. An unstable financial standing would make it hard for the company to extend its operations and find investors. Therefore, keeping an eye on cash flow is incredibly significant.
Michael Dell, the founder, chairman, and CEO of Dell Technologies presented a mind-boggling analogy that explains the significance of cash flow.
“We were always focused on our profit and loss statement. But cash flow was not a regularly discussed topic. It was as if we were driving along, watching only the speedometer, when, in fact, we were running out of gas.” – Michael Dell
