A common concern among small business owners is how to manage late-paying customers. No matter how reputable your clients are, you will find yourself chasing down money you are owed at one point or another. Having outstanding invoices is frustrating, as it often means that your business’s own bills cannot be paid on time, which has a ripple effect that can ultimately hinder performance. There are some things, however, that every entrepreneur can do to try to avoid chronic late payments.
Know your customers
Checking your customers’ credit reports is an important step to take. You want to make sure they have a history of paying their bills on time and you might want to get references from other companies who have worked with them to see if there are any red flags that emerge.
Set clear payment terms from the start
If you set your payment terms upfront, you will save yourself a lot of headache later on. Determine what payment terms work best for you. 30-60 days is common, but if you would prefer payment sooner, like 14 days for example, you should feel comfortable discussing this with your client and be prepared to negotiate. It is also commonplace to institute late payment penalty fees, such as 1.5% interest per month, and even incentives for paying early, such as a 2-5% discount for paying within the first 2 weeks of the invoice date. Whether or not you choose to do this is up to you, but be sure to establish everything upfront. Once both sides agree to all of the terms, remember to put it in writing.
Make it as easy as possible for your clients to submit payment
It is helpful to your clients — and will facilitate timely payments — if you accept a wide variety of payment methods, such as checks, credit cards, debit cards and echecks. Having an autopay option is also something good to consider.
Automate the invoicing process
There are programs, often in the form of apps, that help with invoice generation and payment follow-up. These programs are great because they eliminate the need for you to send and follow up on invoices, which is incredibly time-consuming. QuickBooks, FreshBooks and Wave (for businesses with fewer than 10 employees) are good ones to evaluate.
Consider applying for a factoring line
Accounts Receivable financing, commonly referred to as a factoring line, can be a great resource for small business owners even when they have done all of the above because it allows them to get payment on their outstanding invoices without the typical 30-60-day wait time. Your company receives financing based on a portion of the money it is owed by its customers (usually 70-90% of the amount of the outstanding invoices). Essentially, the factoring company finances the slow-paying invoices. ExpoCredit offers accounts receivable financing without the lengthy approval process of traditional banks.
For more information and to apply online, contact us at www.ExpoCredit.com