Unless you run a business where the buyer must pay at the time of purchase or 100% in advance, slow-paying customers can have a drastic impact on your finances. Cash flow problems can cause your business to dip into your reserves, and might force you to take out a loan to cover your operating costs. Lack of available assets could also cause you to miss out on unexpected opportunities.
Here are nine steps you can take before, during, and after a transaction to maximize the chances you will see your money in a timely manner.
Before the transaction
- Make sure your client has the money to pay you. For businesses that extend credit, a credit check is a must. Do not accept deals where your payment is contingent on your customer getting paid. If your client’s client suddenly stops paying, your business will likely inherit your client’s cash flow problem.
- Be flexible with payment methods. The days when small businesses were limited to cash or check are over. Today, businesses of all sizes have access to a wide range of affordable payment options, including cash, check, credit cards, bank transfers, and third-party payment services like PayPal. While the cost of payment methods can vary, if a customer is delinquent and offers to make a payment, it’s best to take it, even if you have to pay a higher transaction fee.
- Establish policies and procedures to handle delinquent accounts. Every business has to deal with them, so you might as well have a process in place when they occur. Set a timeline with clear, concise steps on what actions your business will take to collect debts. Make sure the client understands what will happen if they do not pay on time.
Arranging the transaction
- Keep payment terms as short as possible. Try to set the invoice as due on receipt if the customer’s payment schedule allows. If you mainly deal with large businesses and government agencies, it isn’t always possible to get such short terms because of the sheer amount of bureaucracy, but don’t hesitate to ask.
- Reward customers who pay early or up front. Many businesses give small discounts to customers who pay quickly, but it doesn’t always have to be a financial incentive. Choose a reward that makes sense for your business and clientele.
After the transaction
- Send invoices promptly. The longer the debt goes unpaid, the less likely the customer will come through. Whether you send invoices electronically or by snail mail, don’t sit on them any longer than necessary. If possible, process your invoices immediately.
- Review accounts receivable frequently. Your accounting software will tell you the status of your accounts receivable accounts. Review them at regular intervals that make sense for your business.
- Engage the customer within a reasonable time period when they miss a payment. Sometimes late payments are simple errors or misunderstandings. Don’t be afraid to reach out to the customer by phone. A friendly phone call is more likely to get an answer and keep the customer relationship positive.
While delinquent accounts are a fact of life for most businesses, managing accounts receivable throughout the process can help keep your business’s income in the black. Cougar Mountain’s Denali is the business accounting software you need to make the critical accounting decisions for your small business.