Every business faces a cash flow problems from time to time. However, late paying customers can turn a crisis into a calamity – and in some cases can collapse even the most profitable companies. So how can you make sure you get paid on time, giving you the funds to pay your own creditors?
1 Switch to paperless invoicing
Send your invoices electronically and they’re received within seconds – not within a day or two. You’ll also save yourself the cost of stationery and postage, which can add up if you issue numerous invoices every month. It’s your call whether you compile the invoices manually or opt for one of the specialist software products that can track activity and automatically add VAT.
2 Send your invoices to the right person
This might sound obvious, but it’s amazing how many companies get it wrong. If your customer contact isn’t in the accounts payable department, there’s every chance that an invoice won’t be passed on for days, weeks – or at all if your contact gets distracted just before hitting “forward”. Find out who is responsible for paying you and build a productive relationship with that person, as you’ll get paid a lot faster and will be able to get informed advice if anything goes wrong.
3 Invoice on time
If you invoice customers on the last day of the month, make sure you do it on that day and not about a week later. Whilst there may be other pressing demands on your time, the simple fact is that the faster you invoice the sooner you’ll be paid. Some sources argue that certain days of the week are better for invoicing than others – Thursday is apparently the best day to invoice and Sunday the worst. However, getting the invoice out on time is far more important than choosing a particular day on which all the planets are aligned.
4 Clearly state your payment terms on the invoice
If your payment terms are 30 days net, say so on the invoice. If your local laws allow you to surcharge for late payments and you opt to do so, clearly state this. Of course, many customers will pay before the due date, as they’re keen to maintain a respectful relationship with you.
5 Offer a discount for faster payment
If getting 95% of the billed amount within five days is better for your business than getting 100% within 30, you should offer a discount for fast payment. This can, of course, be combined with penalties for late payment to create a co-ordinated “carrot and stick” approach.
6 Make invoicing simple
Agree payment terms with your customers before sending out invoices and they will have far less “wiggle room” and will therefore be more likely to meet your deadline. A signed contract at the very outset will go a long way to defusing any arguments over billed amounts or payment deadlines. You should also keep the most detailed records of expenses possible, so that if customers query amounts you will have all the answers to hand and won’t have to spend days or weeks justifying your invoice whilst your customer stalls.
7 Follow up immediately if payment is not forthcoming
Some customers will pay within a few days, without prompting. Others are unlikely to pay without two or three follow-up calls. You don’t have to wait for your payment deadline to elapse before chasing up, though it’s obviously good manners to allow a few days at the minimum. In the first instance, resending the invoice with a request for payment should be sufficient. If this doesn’t produce payment, follow up with a call to the accounts department. Finally, in the unlikely event that a customer simply refuses to pay, you might have to consider legal action.
8 Talk to Cashsolv about invoice factoring and discounting
Cashsolv are specialists in innovative business finance, and we can tame your troublesome cash flow forever with invoice finance. These solutions allow you to borrow up to 85% of the value of your invoices the instant you issue them, with repayment being made when your customers pay you. With factoring, we take control of your debtor ledger and assign experienced credit control professionals to secure early payment, thus minimising the amount of interest you pay, whilst with invoice discounting you retain control of your own debtors and use your own staff to chase up payment.
To learn more about how Cashsolv can transform your business, please visit our business finance page.