Did you know? 1 in every 2 small business in the US struggle because of customers that can’t or won’t pay. This creates an even larger problem for these small businesses because it affects their cash flow (which is the ultimate thing that small businesses must have control over). If these businesses aren’t receiving the money they are owed, it puts a major hitch in their business operations. Small businesses need to aim to solve this issue and take care of it from the very beginning. As a small business owner, learn how to strategically manage your late invoices in these 5 steps.
Taking Charge of Your Late Invoices in 5 Easy Steps
1 – Extend credit to the RIGHT customers – Many of your receivables’ headaches can be prevented by only allowing customers who can be responsible to operate on net terms. We understand, though, that this can be hard to predict. However, take every possible precaution you can. How? Create a written credit policy, make sure you have a credit application, check customers’ credit before extending and operate on COD (cash-on-delivery) terms with all new customers. Allow them to earn the privilege of net terms. This sort of forethought is the first step to avoid late invoices.
2 – Always keep an eye on your customers – You should keep a continuous watch over your customers’ finances. As you know personally from running your own business, finances fluctuate, end of story. A once loyal customer can run into financial troubles and all of a sudden turn into a delinquent account. Prepare yourself. Monitor you customers’ credit continuously to be aware of any red flags (judgments, suits, liens or bankruptcies are good examples). This will allow you to react quickly and immediately switch that customer to COD so you don’t find yourself with a delinquent account. Late invoices will always be better managed the more on top of them you stay.
3 – Keep your customers in the know – Let’s face it, we’re all human. We’ve got a lot going on and it’s hard to keep everything in line. The best way to get your customers paying on time is to make sure they remember when to pay. Don’t just send them the initial invoice, but follow up with payment reminder letters (or emails). This will put you back on top of your customer’s payment priority list. Keep these contacts friendly and appreciative so the customers enjoy getting them. You can prevent late invoices by consistently staying on customers’ minds.
4 – Make you customers love paying back – The more options and the easier you make it for your customer to pay you back, the more likely they will. What do we mean? Consider offering payment installment plans to customers. Although not ideal, giving them the opportunity to spread out smaller payments might be the key in getting your money, instead of them not paying at all. Also, definitely make online payments available for your customers. If they can simply enter their information in online, you’ve just made the process that much more simple (and cut out the waiting time for the mail).
5 – Don’t hesitate to get help – The longer you wait, the harder it is to collect. Learn to understand when an account is hopeless and it’s time to turn it into the hands of a professional. Although this should certainly be the last, final stop in your process, don’t hesitate to go there. And remember, you have options. You can sell your invoices to someone else with invoice factoring. You can look at calling a collection lawyer. And of course, you can send you accounts to a collection agency.
The truth is, managing your late invoices is never a simple process, but the more you take control of it, the easier it can be. Small, simple steps and using awareness and precaution can help make huge improvements in your customers’ payment behavior. Start taking charge of your late invoices today.