Proper cash flow management is crucial for a small business. You need to maintain that delicate balance between your expenses and your incoming revenue so your business can grow and thrive. However, late payments can throw off this balance and put your company at risk.
Fortunately, there are several steps you can take to strengthen your credit control process and get ahead of late payments.
How to Get Ahead of Late Invoice Payments
1. Use pre-emptive measures to safeguard your business
When trying to avoid late payments, the best place to start is at the beginning of your business relationships with clients. If you are dealing with a potential new customer, you must conduct a thorough investigation on their credit and payment history as well as their company’s financial background.
This will help you weed out the good debtors from those who are at likely going to create problems for you in the future. This will also help you establish the most ideal credit limit for them.
The next pre-emptive measure is to provide new clients with the latest copy of your Terms and Conditions. Give them time to read this document and welcome any questions they may have. Doing this ensures both you and your clients understand the terms of your business transaction and what you expect out of each other.
2. Conduct a cash flow forecast
Small business owners often rely on their monthly budget to determine their company’s current show cash position. Although a budget is extremely useful for keeping track of sales and expenses, it does not account for the fact that clients often send payments a month following the purchase.
To properly evaluate your company’s financial position, you need a document that shows cash inflow and outflow according to the payment cycle instead of the operating cycle. This is where a cash flow forecast comes in. With a comprehensive cash flow forecast, you can plan more effectively and combat the problem of late payments.
3. Consider negotiating payment terms
Keep in mind that there are no hard and fast rules for payment terms. While it is a good idea to establish standard payment terms, do not hesitate to adjust them to suit your client’s situation as well as your company’s interests.
For instance, you may require some customers to provide prepayment before you deliver the goods or services they ordered. You may also offer certain clients a discount if they pay their invoices early. This will encourage them to settle their accounts sooner rather than later. Thus, helping you minimise the risk of late payments.
4. Automate your payment reminders
More often than not, late payments are caused by a lost or forgotten invoice. After all, your clients may very well be busy with their own businesses or projects. To make sure your invoice remains at the top of their “to pay” list, consider sending out automated reminders at strategic moments.
You can set up an email reminder to be sent to clients two days before the due date, on the day of the due date, and two days after the due date. It would also be a good idea to include a link to the payment gateway in the reminder message so clients can settle their accounts immediately.
5. Consider outsourcing debt collection
Another sure-fire way to stay ahead of late payments is to hire a professional debt collection agency. They will take care of all your debt recovery needs so you won’t have to worry about chasing debtors. Instead, you can focus all your efforts on running and growing your business.
Here at Slater Byrne Recoveries, we offer more than just efficient debt recovery solutions. We can also help clients improve their credit control procedures and enhance their cash flow management system. Click here to find out more about our services.