It may sound shocking, but it’s true: Nearly 60 percent of invoices are paid late. Considering the fact that small businesses (defined as businesses with fewer than 500 employees) account for 99.7 percent of all business in the United States, late invoices are often a sign of a bigger financial issue. Invoice payment and collections are often the most challenging part of a small business owner’s day-to-day operations. You’ve done the job, and now you need to get paid. Some clients are slow to pay, and other larger companies have established payment terms of 30 days or more.
You can’t run a business on a promise to pay. You need capital just to keep your business going. How many times have you said, “If I could get paid for that job or service today, I could do X, Y or Z.”
Sometimes X is paying your team, and Y is buying a new piece of equipment that’s going to help your business become more efficient. You’re trapped and so is the money tied up in your unpaid invoices.
Late invoice payments can be problematic for small businesses in need of immediate financing. Often, small business owners sabotage their own success and growth by not having clear expectations about their payment terms. They are excited about having the business, but don’t hold their clients accountable for paying on time.
There is, however, a wide range of solutions available that can help your business collect the money it receives. Here are just a few proven strategies that can reduce late invoices for your business.
Set Rigid and Non-Negotiable Deadlines
While you don’t want your business to come off as overly demanding or money-hungry, your customers need to realize that you need cash flow to stay afloat. Ask yourself: “Would my client wait an indefinite amount of time for payment from its clients?”. Of course not and neither should you.
Start by being very clear about the way you communicate invoice policies to your clients. Use deliberate language that portrays to the customer that you’re a reputable business that relies on customers to pay their invoices on time. The policies and due dates should be non-negotiable, and instead of giving them a number of days to pay (30, 60, 90), give them one solid date to serve as a rigid deadline before they incur a penalty. All of this should be spelled out clearly in your terms.
Automate the invoice payment process
The best way to manage your invoices and enforce your invoice payment policies is to automate the process. As soon as you’ve completed the work, submit your invoice. Then, allow whatever app or service send regular reminders as the due date approaches. It’s also helpful to include gentle email reminders that they will incur a late fee penalty if they pay late. Again, allow the technology to handle that for you. Many services will automatically update the invoice to reflect the late payment into the total.
Using technology gives you a consistent paper trail to reference if you’re client is slow to pay, and it allows you to focus on other areas of business without having to waste time on a phone call or updating an invoice.
Consider Small Business Factoring Solutions
If your business has tried the method listed above and is still having some trouble getting customers to pay their invoices on time, consider small business invoice factoring as a solution to cash flow issues. Invoice factoring is a type of accounts receivable financing that converts outstanding invoices due within 30 to 90 days into immediate cash for your small business.