Getting paid for products or services is essential for every business, but one of the biggest challenges many businesses face is getting paid on time. Late payments can disrupt operations, delay growth plans, and cause quite a bit of stress.
So, what can you do about this? Are there ways to get paid sooner? And if so, how do you go about implementing these strategies? We cover all of this right here.
Credit check new customers
Before heading into any business relationship with a new customer, it’s a good idea to carry out a credit check. Understanding a potential customer’s credit history can provide valuable information about their ability to pay on time. If the credit check raises any red flags, consider asking for payment in advance. This not only helps to reduce risk but also establishes clear expectations right away about paying on time.
Prompt and accurate invoicing
Timely invoicing is a key step in ensuring that you get paid quickly. You should always aim to issue invoices as soon as the goods or services are delivered, if not before. Make sure each invoice includes all the necessary details such as your company name, address, contact information, invoice number, date, a clear description of the goods or services provided, the amount due, clear payment terms, and due date. This reduces any time wasted requesting details as well as avoiding confusion about terms.
Proactive debt chasing
Stay on top of outstanding debts by regularly reviewing your accounts receivable. It’s best to concentrate your efforts on customers whose invoices have been unpaid the longest or who have a history of late payments. You may want to consider setting up a system that sends out regular reminders and follow-ups. Xero software does this very well. The longer an invoice remains unpaid, the trickier it becomes to collect, so don’t be afraid to be friendly but persistent in chasing up late payments!
Use invoice finance
If your business invoices other businesses on credit terms, Invoice Finance can be an effective way to unlock the funds tied up in outstanding invoices. This financial product lets you receive a significant portion of the invoice amount upfront from a finance company, which can improve your cash flow straight away. Once the customer pays the invoice, you receive the remaining amount minus a fee charged by the finance company. This solution provides immediate liquidity and reduces the stress of waiting for payments.
Establishing an escalation process for late payments
No one really likes to think about late payments but it’s important that you have a clear and structured escalation process for late payments. This can help you to manage overdue accounts much more effectively. Start with reminders via email, asking for a planned payment date and time. Then move to phone calls where you’re pleasant but firm. If this doesn’t result in a payment, formal communication such as letters or emails indicating the urgency of the payment might be necessary. In more extreme situations, you may need to consider involving a collections agency or getting advice on whether you should take legal action. Often a letter indicating that this is your next route can result in payment appearing.
Negotiating disputed invoices
Sometimes, disputes arise that cause delays in payment. For invoices that have been outstanding for a long time, you may want to consider negotiating with the customer to reach a settlement that you’re both happy with. For example, accepting a partial payment might be better than receiving nothing at all.
Outsourcing credit control
If managing credit control is taking too much of your time or you find it particularly challenging, consider outsourcing it to a specialist agency. These agencies have the expertise and resources to manage your accounts receivable efficiently. They can handle everything from credit checks and invoicing to chasing payments and dealing with disputes, freeing you up to focus other areas of your business that need your unique touch and knowledge!
Offering early payment discounts
Early payment discounts are a great way of encouraging your customers to pay faster. Even a small percentage off the invoice total can be an attractive proposition for customers and can significantly reduce the time you wait for payments. Just make sure that the discount offered does not negatively impact your profit margins, and be careful to clearly communicate this offer in your invoice terms to encourage timely payments.
Renegotiating payment terms
If late payments are a recurring issue, consider renegotiating the payment terms with your customers. Reducing the number of days’ credit you offer can help improve cash flow. For instance, if your standard terms are net 30 days, consider reducing this to net 15 or even net 10 or 7 days. This change can significantly shorten the payment cycle, though it’s important to communicate and agree on these new terms with your customers before just changing it.
If you have questions about any aspect of your finances, please get in touch with the Trinity team. We’d love to help!