For many industries, late invoices are easily the most annoying and hazardous parts of the job. It often seems like there’s literally nothing you can do to ensure that all of your future clients/customers send payments on time. As luck would have it, a great deal of businesses that revolve around invoices are naturally prone to extreme ebbs and flows in cash flow. Examples include medical practices, wholesalers, and retail. Combine late invoices with a slow period and you’ve got some serious panic on your hands. But as frustrating as this situation is, getting angry usually won’t help you. Odds are, your clients aren’t intentionally paying late, nor do they want to not pay you at all.
There may actually be a few things you can do to decrease the likelihood of late payments. So, rather than always blaming the client, take a look at these potential reasons you are not being paid on time:
1. Unclear Payment Terms
Invoices must contain certain pieces of information in order to be paid appropriately. In addition to the basics like your business’s address, the invoice must contain payment options as well as payment terms. The latter specifies how much time the client has to pay you before the invoice is considered late. Depending on the nature of your industry, your terms could be 7 days, 30 days, due at the end of the month, or due upon receipt. Before signing a contract and starting work for a new client, make sure the terms are not only included in the contract but that they are crystal clear as well.
It’s not uncommon for a business owner to wonder why a payment hasn’t come in at the end of the month until he or she looks at the contract and discovers a 45-day payment term. Late payments are also more likely when you have different payment terms for different clients. You might send an invoice that says “due within 30 days” when you really meant to put “due upon receipt.” Some clients will develop contracts without payment terms. This could mean it’s up to you to put the payment terms you desire on your first invoices, and then you’ll negotiate from there. And even though your terms were included in your contract, your client might only obey what’s written on the invoice.
2. Not Being Aggressive Enough
A key skill of any successful business leader is getting what you want without being so off-putting that the client just ends the relationship altogether. This is especially crucial when it comes to collecting invoices. You have to figure out how to let a new client know you are serious from the get-go and how to consistently follow up in a moderately aggressive manner. Younger businesses might struggle in both areas since they are increasingly desperate for work. As risky as it sounds, wasting no time to establish a professional reputation is more rewarding in the long run.
Don’t be afraid to be stern when asking for a payment, or to ask for money upfront before starting work for a new client. You might think that having to follow up repeatedly is a sign of an ill-fated business relationship. Sometimes it is, but sometimes it’s the only way to put yourself at the top of the “to-do list” of very busy and successful company.
3. You Haven’t Considered Accounts Receivable Factoring
While following up may be an integral part of some companies’ day-to-day routines, others simply don’t have the time. These businesses might also be prone to unexpected circumstances that require immediate cash, rather than waiting until the end of the payment term. Both situations can be solved by accounts receivable factoring, or the act of selling an unpaid invoice to a business lender for a discount price. This type of working capital loan (that is technically not a “loan”) essentially shortens your business cycle to just a few business days and leaves the business lender in charge of collecting from the client.
With accounts receivable factoring, you don’t have to limit your client list to companies that can work around your terms. You can offer flexible terms, making you more appealing to a larger amount of potential clients. Many clients of United Capital Source use accounts receivable factoring multiple times within a couple of months. This also allows them to maintain profitability, pay their bills on time, and consistently put money away for growth-related investments.
It’s tough for invoice-based businesses to accept that they have to put so much effort into something other businesses get automatically. But once you know exactly what you have to do in order for money to flow into your business at a faster rate, you’ll probably never have to worry about changing these strategies ever again. And thanks to accounts receivable factoring, it’s the client’s reputation, not payment terms, that determines whether or not the relationship has to end.