One of the most tedious tasks of running a business is collecting unpaid invoices. It is important for a business to get paid on time as it is vital to the success. It brings in cash to pay employees, rent, suppliers, and yourself. Consequently, it is essential to handle collections well from the start.
Fortunately, most collections problems have a simple solution. It is a matter of following the right system. Here we will talk about how to avoid bad-paying clients, improve cash flow without financing, use the right financing to fix cash flow problems and more.
How to get paid on time
It is not complicated to get paid on time. It starts by giving net-30 to net 60-day terms only to clients who have a track record of always paying in time. It is easy to find a client’s payment record online. You need a good invoicing and collections process. Once you have this in place, you will be collecting your accounts receivable with minimal hassle.
Check your customer’s payment history
The most effective way to determine if a client is a good payer is to check their payment history with other suppliers. A company that pays its other suppliers on time will likely pay you on time as well. You can quickly check a company’s payment track record using a commercial credit report.
You can find commercial credit reports online and they provide details about your client’s financial health. If a client has a good track record paying other vendors, they will likely pay you on time as well. Commercial credit reports are inexpensive and can be bought from companies such as Dun & Bradstreet and Experian. These reports are easy to understand and often provide a suggested credit line.
Doing this single step will improve your collections and cash flow. However, there are other steps that you should implement.
Use a well-written contract
A contract should govern every commercial sale. A contract is essential if you provide your clients with 30 to 60 days to pay their invoices. The agreement must be drafted by an attorney and outline all deliverables, time frames, how disputes are handled, and all payment expectations.
Not using a contract is a mistake, especially if you are offering payment terms. When payment is due you will nothing in writing. You will have little recourse to take action.
Use a delivery acceptance letter
Many small businesses make the mistake of never getting any proof from the client that the work or product was received and accepted. You can improve your collections process by using an acceptance letter. The letter states the client is satisfied with work that has been done or products that have been delivered. The client should sign it once the work is completed.
Using an acceptance letter has several benefits. First and foremost, it helps you identify potential issues at the time of delivery. If the client is unwilling to sign the letter, there is obviously a problem. This step gives you a chance to fix the problem immediately and minimizes the chances of having a dispute later on.
Send the invoice and paperwork
Send an invoice and any related paperwork as soon as the work is completed, or the product is delivered. Follow the payment procedure outlined in the contract. If your client requires that you send the invoices to accounts payable, with a copy to the project manager (or someone else), do so.
Follow up with clients
It is a good idea to follow up with clients regularly. It helps keep their payments running. Verify that you client goes the invoice on the day you send it, along with all the paperwork. This step ensure that the invoice has been received and will be processed.
Handle disputes in a professional manner
In a dispute, the client is unhappy with the quality of your product or service. Do your best to solve the issue promptly. This approach helps you keep the client and your reputation.
Ask for outside help when needed
No invoicing and collections method is 100% perfect. There is a chance that some clients will not pay their invoices. Non-payment can happen due to unforeseen events. In this case, consider hiring an attorney or working with a collections agency. Dealing with past due invoices and collections problems distracts you from running your business and can affect morale.