One issue that may impact your bottom line is not getting paid fast. Fifth Third Bank offers 5 ways for businesses to get paid faster - read more here.
Six in 10 small business owners regularly struggle with cash flow issues, and 69% say they’ve lost sleep over cash flow concerns, according to a survey from Quickbooks. Those cash flow challenges aren’t necessarily due to a need for more customers or orders; they often result from slow-paying customers.
The survey also revealed that a third of small business owners estimated that their businesses were currently waiting for more than $20,000 in unpaid receivables, and U.S. small businesses regularly average $53,399 in unpaid receivables.
For a small business, waiting for payments to arrive can be crippling. But there are steps business owners can take to collect on invoices quickly and improve cash flow issues.
Here are five methods your business can consider to speed up the payment process:
1. Invoice as Soon as Possible
The longer you wait to send an invoice, the longer you’ll have to wait before that invoice is paid. Develop a system to send invoices as soon as the product or service is delivered.
Some service-based businesses may be able to invoice in stages, requiring a portion of payment upfront (such as consulting businesses that require partial payment before, partial payment during, and remaining payment after the project). If you can invoice in stages, that may help to speed up the time between invoice and payment.
2. Send Payment Reminders
After sending an invoice, it can be helpful to follow up periodically to keep customers motivated to pay. Depending on your business model and your customers’ expectations, you might want to send reminders every week, two weeks or 30 days.
Establish an automated system to send reminders of unpaid invoices, so that you don’t have to spend valuable time manually creating and sending reminders. Most electronic bookkeeping programs have options for doing this and will automatically create statements on the schedule you set.
3. Make Invoices Easy to Pay
Make sure that your invoices are clear and easy to understand. If your customer has difficulty understanding your invoice, they are likely to postpone paying it. At a glance, customers should be able to see how much they’re being charged, for what products or services they’re being charged, any additional taxes and fees, and the deadline for payment.
If clients need your W-9, tax ID information or other documentation to be able to pay you, be sure to provide all the necessary documentation upfront. That will make it easy for clients to pay your invoice and avoid chasing down extra information.
4. Offer Various Payment Options
Every client has a different financial situation, so you’ll get paid faster if you allow them to pay in whatever way suits them. That means consider accepting payments via cash, credit, ACH and mobile wallet.
Also, consider offering discounts for clients who pay quickly, or for those who pay in full rather than paying over time.
5. Work with Customers Who Need More Time
If a customer’s account goes past 60 days (or whatever threshold you set), reach out to discuss the issue and find out if you can help. Doing so will help you create goodwill with that customer, and it will also likely make them more interested in paying you faster.
You could consider offering a payment plan for customers who are having cash flow challenges to give them more time to pay. This will also foster goodwill and build customer loyalty. If you offer a payment plan, be sure to put the terms in writing and require the customer's signature. Also, require cash payment for any other orders until the outstanding balance is paid.
Take time to implement some of these strategies, and you could start seeing your accounts payables shrink while your receivables start piling up. As clients pay faster, you'll be able to worry less about covering day-to-day expenses and plan confidently for a brighter future.