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The one thing that can hurt a business faster than any disaster.
Unpaid invoices can be costly for the business as unstable cash flow damages the financial health. Consequently, making it harder for any business to operate.
There is no surprise how often small businesses find themselves in such a bind and miss growth opportunities. For instance, an opportunity to expand operations is confronted with the need to fulfill the next order. These shortfalls and cash flow gaps are mostly on the back of the outstanding invoices.
Businesses in similar situations should look for better ways to deal with unpaid invoices. Overdue invoices are costs of doing business, but they don’t always have to be. While you want to maintain a good relationship with the client, it is equally important to improve your payment cycle.
There are several ways to improve your payment cycle and reduce the amount of invoices that go unpaid.
1. Set Clear Payment Terms
The most integral part of getting paid on time is by ensuring that you have defined clear terms to your clients before entering a deal. A healthy relationship with the client means that you intend to continue to do business together and you have clearly defined contracts to avoid any confusion.
2. Quick Invoicing and Scheduling
As soon as you fill an order or finish a project, put invoicing as a top priority. The faster it gets to the client, the quicker it is processed. Only if you hold up your end of the contract by sending invoice on time, you will be able to hold the customer accountable for paying on time.
Simultaneously, your payment terms should include a schedule. Once a delivery is fulfilled, you should send an invoice as soon as possible. However, if your payment term mentions that you have to bill the next day, you should be following it. It is important that you stick to the schedule established in your payment term.
3. Effective Follow-up
Once the invoice is sent out, you can start to follow-up in a periodic manner. Though you cannot start emailing the customer the very next day of the delivery of your product or service, unless stated in the payment term contract.
Effective follow-up means that you must be polite, mindful but responsive at the same time. After your first invoice is sent out, you can check with the client to ensure they received it. This gesture is appreciated and sets a precedent for a two-way communication.
4. Incentives, Penalties and Recognition
Offering incentives to early paying customers is an effective way to handle invoices. The incentives can a part of the payment term – whereby you offer clients a certain amount of discount on the total invoice for paying early.
Similarly, you have the option to charge penalties to customers that do not make payments under contract terms. However, this approach is not recommended since it affects the relationship with the client. It helps to collect payments on time but maybe not the best practice for the longer term.
A great way to acknowledge and appreciate business is by sending thank you emails on every paid invoice. Although this practice might not have a direct link with on-time payments, but it helps in building a strong relationship with the customer.
5. Be Flexible
You need to make it easy for customers to pay. The easier the payment process, the faster you will be paid. It begins with an easy invoice and a flexible payment method. Choosing an electronic payment system makes the process faster.
Using online payment tools can simplify the payment process on both ends. You can allow multiple options within electronic payment to facilitate ease and flexibility. You can also allow paper checks to facilitate the clients that prefer traditional payment methods. By allowing multiple payment options, you ensure that there is one less interference to an outstanding invoice.
6. Factor
Lastly, you can always factor your unpaid invoices. Employing and executing all the techniques does not guarantee that you will have timely payments. You might still have unpaid invoices even if you have tried to mitigate them.
Factoring is a quicker way of collecting unpaid invoices. You can unlock the cash that is caught up by selling unpaid invoices to a third-party factor. In return, the factor would give you cash equivalent on a percentage of your unpaid invoices. Struggling with unpaid invoices could mean much worse than mere cash flow gaps.
Invoice factoring can resolve the cash flow gaps quicker than traditional loans. Factoring companies in Fintech space can process applications in as little as 24 hours.
Factoring can be largely effective if you have a large invoice that could free up significant cash and help your business grow.
Want to unlock cash caught up in unpaid invoices today?