Irrespective of how big your business may be, unpaid invoices are more than just an inconvenience.
It is imperative to have strategies to ensure invoicing will not have a negative effect on your business.
This may sound somewhat overdramatic, but unpaid invoices usually affect the cash flow of your company, making it difficult to operate. Therefore, unpaid invoices are a huge deal which requires immediate attention.
Here are 8 approaches to handling late payments on invoices.
There are various variables which affect the speed at which invoices are paid.
Online payment often takes less time to process as opposed to paper checks. Additionally, deposit clearance periods and bank holidays can slow down processing times.
The processing times for credit cards are things you need to consider because it takes some days for funds to reflect on the bank account of the business.
Anticipating these kinds of delays will help you build flexibility into the management plans of your cash flow.
Seek different ways you can make the payment process simpler for all parties. That way, clients will know that you also have their interest at heart.
2. Set Expectations Early
The terms of invoicing are some of the most essential aspects any business will need to establish with their customers. Letting your clients know about these terms in advance will help to avoid awkwardness when payments are due.
If you are unsure what terms you are going to apply, you can simply create your own: you can ask for upfront payments, although this approach could be challenging.
You may also ask for a deposit which involves 50 percent of the total cost of the project. That way, you’ll be backed with some insurance, should there be any form of delay.
Alternatively, you can choose to use the standard thirty-day terms. This all depends on what you prefer.
3. Pick up the Phone
If email reminders don’t work, maybe it’s time to pick up the phone and make that call.
Sometimes having a conversation with your client and making them understand your situation is all it takes to get paid.
Keep calling from time to time to create pressure, but make sure you do it in a respectable manner.
If you find it difficult calling your clients, you can have your PA do it for you. Sometimes, having another person do the chasing adds credibility and authority to your business, and this will have your clients worried about delaying the payment.
4. Charge Interest for Late Payments
Some businesses will charge an additional 3 percent after 60 days while others will charge 2 percent after 30 days.
In other cases, if the invoice is not paid within four weeks, a 5 percent fee is charged for the delay. This initial 5 percent is then added to every recurring 30-day period, and this will continue until the payment is made in full.
How you decide to set your terms is up to you.
How will such decisions affect your business? You need to remember that the best relationship between a business and its client is based on trust.
You need to ask yourself if it is worth charging interest even before you have an opportunity to prove your worth.
5. Give Discounts and Impose a Penalty
Giving a discount for early payments will encourage clients and customers to pay their invoices way ahead of time.
It is common to give a discount of one or two percent on the total amount if payments are made in full within ten days.
However, you need to remember that not every person gets motivated by incentives. Even so, these clients may be motivated in the case of a penalty.
This will push them to make faster payment and enable you to cover the cost involved in financing issues that your business may face.
Delayed invoice payment means that you’ll not be able to pay your bills on time and this may end up affecting your bottom line. Therefore, the discount and penalty approach may work well for your business.
6. Send the Right Person
Sometimes, invoices do not get paid because a wrong department or person has been selected to follow the payment process.
Therefore, if payment is delayed or fails, find out who is responsible for making a follow-up and why there has been a delay.
At this point, you can make the follow-up yourself and ask what it is you need to do to get paid in full. There may be an issue of address or date that may have resulted in the delay.
7. Escalate Your Plan
There are instances when you have no option but to escalate a response to the non-payment. Even when the default rate in your invoice is low, you are likely to run into a situation where customers act with a lack of responsibility.
As a business, you need to ensure you can maintain a policy of zero-tolerance for excessive payment delays, ignored emails, and the lack of communication.
Warn your clients that you’ll send their invoice to a collection agent within a specified period. While doing so, make sure you remain calm, polite, and respectful.
A collection agency will help you get back what belongs to you.
8. Invoice Financing
Invoice financing has become a popular cash flow funding option for many businesses. This approach enables a business to borrow money against their outstanding invoices.
Ideally, a business sells its accounts receivables as an asset at rates which are discounted to a third party. With different invoice finance options available to you, you’ll be in a position to get the cash flow when you need it.
Trade and transaction keep businesses and the entrepreneurial economy strong. In a business world, missed or delayed payments are more than just a contract breach as they disrupt the ability of the business to run smoothly and offer a high service level.
The above pointers will help to prevent conflict before they get to arise. It is important to apply the strategies above in accordance with your situation and your relationship with clients.