Things You Can Do To Get Paid On Time
When customers do not pay their invoices on time, this puts a lot of pressure on businesses because it limits their cash flow. Cash flow is necessary for businesses to be successful and to continue their operations. However, slow-paying clients can thwart that and make it much more difficult. It is important for businesses to have policies in place to limit the number of slow paying invoices. In this article, we will discuss a couple of things that businesses can do to increase the chances that they are paid on time.
The first is to only work with clients that a history of paying their bills. A good way to determine whether or not a customer is likely to pay on time is to pull their credit report. This information will not only include a company’s credit score but also their payment trends. This will give you some idea of how soon a customer is likely to pay. Making the investment in both time and money to purchase a business credit report will pay off big. If your company’s clients are individuals, you can also pull their credit score. If you are able to prevent working with poor paying clients then your company will not have to worry as much about collections or not being paid at all.
A second way to ensure or increase the chance that you are paid on time is to deal with your invoices in a responsible and proactive manner. This involves you keeping track of the age of your invoices. If you have an accountant on staff, they can help you with this. You can also purchase software for this purpose. Invoice aging allows users to see exactly when an invoice has been sent out so that they can track how long it has gone unpaid
There will obviously need to be some processes and rules in place to determine how you govern unpaid invoices. For example, you will need to decide when to begin corresponding with a client asking for payment and whether or not the correspondence is written or via telephone. It is important to have these policies in place and to also and follow through on them. This should help to cut down on the number of late invoices.
What can you do if you still can’t afford to wait? Is there a solution? Now if properly managing your invoices and only dealing with clients with good credit and payment trends still does not solve your problem and you find that you need money right away but it is not available because you have so many slow pays, one option is invoice factoring. Invoice factoring (also known as accounts receivable financing) is the practice of selling your accounts receivable (invoices) at a discount to another company.
Factoring is a financial tool that is specifically designed to help you afford to offer credit to your customers. Companies who factor will advance you the money for your outstanding invoices. They will then collect on the invoices and then return you the difference (between the money they advance you and what they collect). The factor will then charge you a fee for their services.
Factoring is one way to handle cash flow problems caused by late paying clients. It is also good if you simply need money right away and cannot wait even until invoices come due.