Getting paid on time is often critical to business success. With a reliable, steady cash flow, you can more accurately predict future revenue, lower collection costs, secure credit funding, and increase company options. If your clients don’t pay, you may have to tap into a commercial line of credit, or even take a second mortgage on your home to make payroll.

Chasing down slow pays is a job most small business owners would like to avoid. During the start-up phase of business development, the business especially needs capital, and collecting from slow pays can be time-consuming and expensive.

One solution is to make it easy for clients to pay. Offer a number of payment gateways, from online bill payment to a paper bill sent to the client. The easier it is to quickly make a payment, the more likely payment will be made on time.

That’s just the start. Here are some other suggestions for loosening up your cash flow and spending less time chasing after clients who owe you money.

Purchase accounting and customer management relations (CRM) software. You can’t track collection progress if you don’t know what steps have been taken and what needs to be done next. Track each project, each sale, using CRM software. Set notifications to indicate when a client is overdue or exceeds his credit limit with your company.

Conduct credit checks of new clients or customers. Each check may cost a little, but these background checks can also save a lot of time and prevent headaches caused by dealing with customers who are less than reliable.

Get it in writing. A contract that details delivery milestones, payment milestones and other important information can save a lot of time, and let you sleep better at night. Never seal the deal with a handshake. You want an ironclad contract reviewed by your company’s legal counsel.

Spell out your terms often. Your company’s payment terms should be detailed in any contract. Marketing materials designed for prospects is another good place to detail terms. Also, provide a detailed explanation of terms on all invoices you send.

Invoice quickly, while the service is still fresh in the client’s mind. If you don’t invoice quickly, you’re in essence loaning interest-free money to your clients. If you can invoice at the time services are delivered, even better. The longer an unpaid invoice sits, the less likely it will get paid.

Get something upfront before you do anything. This ensures the client has a financial interest in the project’s completion. It also provides capital to undertake the new assignment, or order materials for your next job.

Offer incentives for immediate or early payment. A simple way to offer incentives is to knock off a percentage of the total invoice amount “if payment is received within 15 days.” It may cost you a little, but chances are, it’ll cost less than the cost of collection from slow pays.

Stay in touch with all clients. An invoice isn’t the only way to remind a client of an outstanding balance. Stay in touch with the company management of your slow-paying clients and keep things cordial. Follow up each engagement with a thank-you email to gently remind clients that money is still owed your business.

Visit the client’s headquarters. Always be cordial and professional, but that face time can make a difference in getting paid and getting stiffed for services delivered.

No small business owner likes to chase clients who are slow to pay. If your company’s receivables are stacked to the ceiling, consider hiring an outside agency to handle collections when all else fails. If you take this step, chances are, you’ll lose that client forever but if the company wasn’t paying anyway, you really haven’t lost much.

Write it out, track project and payment milestones, use incentives, and you may ultimately lower the cost of collecting what’s owed you.

 


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.