If you're having trouble receiving payment from customers, you're not alone. Many small businesses deal with this challenge, but here are seven steps your business can take to help ensure you get paid in a timely manner.
1. Be Prepared
Unfortunately, unpaid invoices are a part of doing business, so don’t be caught unaware. Maintain cash reserves that can help you cover them until they are finally paid. Bolster your cash flow management efforts to help you better cope when expected payments don’t arrive on time. Set up a system to encourage early and on-time payments by offering discounts to those customers who pay responsibly.
2. Set Up an Emergency Fund
Set up a business savings account to use as an emergency fund for those times when you're dealing with too many unpaid invoices (or any other detriment to business). If you have to tap into the fund, that's okay. You can replenish it over time, especially as those unpaid invoices you were covering are finally paid up. The key to an emergency fund is to add to it regularly so it continues to grow. The bigger the fund, the better prepared you’ll be.
3. Make Late Fee Policies Clear
When setting up an account with customers, make sure they understand what your policies are for late payment. Invoices should include information about the late fee that will be charged if the invoice isn’t paid on time. Then, enforce the rule and charge the fee if the bill is paid late. The extra money will help your cash flow. Many customers are likely to pay on time simply to avoid the late charge. It gives them an extra push to make sure your payment is a priority.
4. Follow Up Regularly
After you send out an invoice, which you should do as soon as possible, follow up regularly with the customer until they have paid. You can do this by email, direct mail, text, or even by phone, though it's probably best to save the phone call as a last resort.
"Whatever the reason, clients can forget to pay invoices on time," says Femi Lewis at The Balance.* "To address this issue, send a reminder a few days before the invoice is due via email, text, or both. If the invoice is not paid on time, follow up by sending another invoice. Include a polite message letting the client know their payment is past due. In your email, reiterate the acceptable methods of payment as well as any late fees included in your terms."
5. Offer a Payment Plan
If you find that a customer is motivated to pay, but is unable to pay in full, consider offering them a payment plan. With fees and potential interest, you can end up making more from the sale than originally anticipated. They may also feel more motivated knowing that they can pay in installments rather than one lump sum.
6. Stop Working Until Paid (If the Project is Ongoing)
If you are working on an ongoing project with a customer or client, and your arrangement involves billing throughout the process, you can stop working on it until you receive payment. This will send a message that you are serious about being paid for your work in a timely fashion.
7. Consider Turning to a Third Party
If you've tried following up and offering payment plan options, but you still aren't successful in receiving payment, it might be time to get a third party involved.
"When you hire a collection agency, they’ll work with you to develop a plan to reach your nonpaying customers," says the U.S. Chamber of Commerce.** "You’ll likely receive a dedicated point of contact who will keep you updated throughout the process while they work to collect your unpaid invoices."
The Chamber recommends utilizing a collection agency when you can't reach the customer, a payment is over 90 days past due, the customer's payment methods keep failing, the customer keeps making excuses, or if your cash flow is suffering.
Dealing with unpaid invoices can be awkward and unpleasant, but it's part of business, and one that is necessary to maintain healthy cash flow. Use these tips to help you collect what's owed.
* https://www.thebalancemoney.com/how-to-prepare-for-and-address-unpaid-invoices-5196339
** https://www.uschamber.com/co/start/strategy/when-to-use-collection-agency
