To pay employees on time, rent and other operating costs, it is critically important that small businesses get paid for the services they provide. When a customer does not pay their outstanding invoices on time, we understand that it hinders your ability to operate effectively. Use these tips to help your business greatly speed up its cash inflows and lower the number of unpaid invoices you experience in your business.
1. Create and enforce an effective payment policy
To be the most effective, your payment policy should require, a deposit (a minimum of 50% down is suggested) and ensure that any outstanding balance is paid before the completion of the service being provided. Depending on the nature of your business, being paid on a percentage of completion allows for the collection of payments as the project progresses, leaving only a minimal amount due at the end. The goal of your payment policy is to ultimately reduce the amount of monies owed to you while doing business.
2. Have flexible ways for your customers to pay
Having multiple ways for your customers to pay their service fees can have a positive effect on your cash flows. Accepting credit cards and ACH transfers are two methods you can offer in addition to cash, and many accounting/payment systems allow these options with ease and safety to your business and your customers.
3. Be cautious of large or certain governmental contracts
Sometimes the way to speed up cash inflows is by avoiding actions that drain the cash you do have. For instance, large companies and governmental agencies have strict payment policies that are non-negotiable. Some contracts may require you to wait ninety days before getting paid. This may not be feasible for your business if you do not have sufficient amounts available to carry your business for this amount of time before expecting a payment.
4. Manage your accounts receivables
We suggest that you create and review an aging accounts receivable report, regularly. This report lists all the customers who owe you and the amount of time their invoices have been outstanding. In general, the longer an invoice is outstanding, the more difficult it will be to collect on it, so actively monitor your unpaid invoices and follow up aggressively.
5. Don't be afraid to ask for your payment
As business owners, we are sometimes too concerned about how we will make a customer feel by asking for an overdue payment. However, if you provided the service, you should get paid for it. If your customers value what you do for them, they will want to pay what they owe and not jeopardize their relationship with your company.
In closing, getting paid upfront, carefully assessing if your business can financially handle a big contract, staying on top of your accounts receivables, and not being afraid to simply ask for your payment are all ways your business can speed up your cash inflows and stay financial healthy.
If your business is in the start-up phase, learn how to grow your business beyond your first customer.
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