Improving cash flow and maintaining positive cash flow can be challenging for small businesses, whether you’re just starting out or have been running your company for years.
The difficulty often comes down to waiting for clients to pay their invoices. One or two chronic late payers cost valuable time and money when you have to chase them down; if reliable clients also fall behind, the result can be devastating.
These tips will help you get paid faster, so you can avoid a dangerous cash flow crunch.
Stagger your invoice schedule
By staggering your invoicing, you can facilitate a steady stream of ongoing cash flow. If you provide a monthly service, consider breaking it down and invoicing twice a month. If you invoice on a project basis, consider issuing progress invoices as the job progresses so you can get paid for work completed to date.
Invoice quickly – and accurately
When a contract wraps up or it’s your scheduled billing day, send your invoices straight away. Automating your invoicing with a cloud-based accounting solution such as Xero will eliminate the need for time-intensive manual billing and ensure you never fall behind. Before you send an invoice, be sure it’s addressed to the right contact. It also helps to provide as much information as you can so there are no questions and delays with payment processing.
Set a deadline
Make it clear on every invoice when payment is due – for instance, “Payment due on receipt” or “Payment due within 7 days”. Ideally you’ll have outlined your payment terms in writing, including any penalties for late or non-payment, when you start working with a client. Summarise your terms on each invoice as a reminder.
Make it easy for clients to pay you
Provide your clients with as many ways to pay you as possible – internet transfer, credit card, payment gateways. The easier you make it for your clients to pay you, the quicker you’ll get paid.
Set payment policies
You might choose to reward clients who pay early with a small discount or reward as an incentive—or charge a penalty for late payments. Consider a reduction on invoices paid within a certain number of days, or a penalty for late payments. Outline on your invoice the different amounts your customer will owe, depending on the date they choose to pay.
If a client doesn’t acknowledge receipt of your invoice, check in to make sure it was received. Inquire about the status of your payment as soon as a deadline is missed, then resend the invoice with a friendly reminder.
Be willing to negotiate
Sometimes a client intends to pay but needs a bit of time to come up with the cash. Be open to negotiating a payment plan; it’s better to receive payments in small increments than not at all.
Final tips on improving cash flow
Although no small business owner wants to resort to legal action, if you’ve tried repeatedly to contact a client you may have no other option except to claim the loss as a business deduction.
One of the best ways to encourage customers to pay on time is to maintain a friendly relationship. Encourage goodwill by adding a handwritten note to your invoices, remember your clients birthdays, and be sure to thank them from time to time for their ongoing business.
It’s a simple fact: when your clients feel a connection to the person behind the business that serves them, they’ll be more inclined to take care of their invoices quickly.