Money is the lifeblood of a small business. Strategies that shorten the time it takes to collect payments are essential to ensuring that your business can continue to meet its obligations.
Most companies don’t have untapped cash reserves sitting around in a trunk. However, keeping track of accounts receivable (AR) and other cash flow issues is likely a tedious and time-consuming task that you would rather avoid.
Service and product providers often face the frustrating reality that clients aren’t always able to pay their invoices on time, despite having sent them. It is very important for businesses to get paid faster.
Small and medium-sized businesses (SMEs) can be severely impacted by cash flow issues caused by late receivables. What steps can you take to expedite payment from your customers?
1. Keep Your Agreements Succinct.
Invoice terms should be brief and concise, negotiated beforehand, or applied routinely. Do not automatically assume a net 30 or 45 payment term is necessary. You may choose to have payment expected either ten days after receipt or immediately.
Even though accounting clerks may not pay you according to your terms, they will still enter your invoice into their system for payment. No one will offer to pay you ahead of schedule if you don’t ask.
2. Restrain Your Lending of Credit
To expedite the payment process, why not demand full payment from customers on the day of the transaction? After all, you are entitled to full compensation immediately if the service is completed.
To profit from a product, you must first cover its full lifecycle cost, which includes research and development, manufacturing, inventory, sales, and distribution.
3. Invoice More Frequently and Sooner
Generally speaking, the more frequently you bill your customers, the more often they will pay you. More frequent billing cycles of twice a month are acceptable in some fields. If you offer recurring services rather than billing on a set schedule, you can simply bill after each occurrence. Customers are more likely to pay invoices that are sent out quickly.
4. Modify Your Current Payment Policies.
The goal here should be to minimize your customers’ trouble with making a payment to you. Most cash transactions are free of charge, making them a great option. If you don’t have access to cash, you can make almost instant and often cheap online transfers instead.
A better option is to consult with credit card processors to find their services. Some credit card processors, for instance, expedite the settlement of funds when you swipe a card instead of storing the card in your system. Also, because there is less danger involved, processing fees could be reduced.
5. Remind People of Things By Sending Them Reminders
You can prevent receivables from becoming past due by maintaining contact with your customer’s accounts payable department via email or text message. Perhaps your billing software has a weekly reminder feature that can be used to contact clients before they become past due. Keep on top of it because you need those payments to fulfill your business commitments.
6. Create Incentives
Customers can save money by paying early; you can offer a discount on invoices if they are paid within ten days.
Perhaps a 1% or 2% reduction would be reasonable. Of course, this strategy is moot if the cash reserves are overflowing. Still, if you are short on funds, a small discount could be preferable to the interest and fees you currently pay to borrow money to use as working capital. Incentive discounts are something to consider if they allow you to receive your funds faster and cheaper.
7. Get Payments in Advance or Deposits.
Receiving deposits or full payment in advance is a great way to cover your expenses before beginning work on a project for a client. Large projects often necessitate pricey upfront investments in man-hours or raw materials. It’s fair to ask for a down payment or full payment in advance to cover your expenses in those cases.
8. Foster Connections
Building trusting, communicative relationships with your clientele can speed up payment. Interactions, such as timely payments, are facilitated by connections. If the accounts payable department knows you’re a small, independent business and values your services, they may be willing to expedite your payment release.