Maintaining positive cash flow can be challenging for small businesses, whether you’re just starting out or have been running your business for years.
The difficulty often comes down to waiting for clients to pay their invoices. One or two chronic late payers cost valuable time and money when you have to chase them down; if reliable clients also fall behind one month, the result can be devastating.
These tips will help you get paid faster, so you can avoid a dangerous cash flow crunch.
Stagger your schedule
By billing some of your clients mid-month and the rest at month end, you can facilitate a steady stream of ongoing cashflow.
Invoice quickly – and accurately
When a contract wraps up or it’s your scheduled billing day, send your invoices straight away. Automating your invoicing with a cloud-based accounting solution will eliminate the need for time-intensive manual billing and ensure you never fall behind. Before you send an invoice, be sure it’s addressed to the right contact. It also helps to itemize costs in detail so no questions arise that delay payment processing.
Set a deadline
Make it clear on every invoice when payment is due – for instance, “Payment due on receipt” or “Payment due within 30 days”. Ideally you’ll have outlined your payment terms in writing, including any penalties for late or non-payment, when you start working with a client. Summarize your terms on each invoice as a reminder.
Set payment policies
You might choose to reward customers who pay early with a small discount or reward as an incentive—or charge a penalty for late payments. Consider a 5% reduction on invoices paid within a week, or a 2% penalty for every week overdue. Outline on your invoice the different amounts your customer will owe, depending on the date they choose to pay.
If a client doesn’t acknowledge receipt of your invoice, check in to make sure it was received. Inquire about the status of your cheque as soon as a deadline is missed, then resend the invoice with a friendly reminder.
Be willing to negotiate
Sometimes a client intends to pay but needs a bit of time to come up with the cash. Be open to negotiating a payment plan; it’s better to receive payments in small increments than not at all.
Although no small business owner wants to resort to legal action, if you’ve tried repeatedly to contact a customer you may have no other option except to claim the loss as a business deduction.
One of the best ways to encourage customers to pay on time is to maintain a friendly relationship. Encourage goodwill by adding a handwritten note to your invoices, remember your customers’ birthdays, and be sure to thank them from time to time for their ongoing business.
It’s a simple fact: when your customers feel a connection to the person behind the business that serves them, they’ll be more inclined to take care of their invoices quickly.