Are you staring at a long list of past due invoices? Dealing with clients who are sluggish in paying invoices could potentially cripple your business. According to a study by U.S Bank, about 82% of companies end up closing shop due to poor cash flow management.
As a business, you have to pay bills, employee salaries, and debt, and still earn a profit. Sluggish clients do nothing but hold you back. If this behavior becomes chronic, it will stunt your business’ growth, especially if you get the same treatment from multiple clients. In the worst-case scenario, you could have to seek business insolvency advice to save your business.
While some clients might forget to pay the invoices, others might not afford to settle an invoice by the due date. Luckily, you can have clients paying up quickly with the right strategy. It all trickles down to how you handle invoices and client relationships.
Here are four ways to create the best environment for healthy business cash flows:
Discuss Payment Terms Upfront
Although this might seem like a no-brainer, it can be surprising to learn that some businesses might fail to discuss all payment terms from the on-set. Before you start working with a specific client or customer, ensure they know every aspect of payment that matters to your business. That includes the payment date, rate, and any available discounts.
Being vague about payment terms leaves grey areas that could significantly affect your business later on. Most business advisory Perth experts urge companies to detail their payment terms in their contracts. Ensure you also include the payment terms somewhere in the invoice. The clearer the payment terms are, the lower the chances of receiving late payments due to errors or misunderstandings.
Incentivize Early Payments
Your client is most likely receiving multiple invoices every month from other vendors or service providers. If settling your invoice seems easier or less costly than the rest, the chances are that you will get paid faster. You can incentivize fast payment through:
- Allowing multiple payment channels – If a client finds the payment methods you support tough to use, they could take forever to settle your invoice. Offering clients various options makes it easy for them to choose the ideal one. For instance, you can allow them to pay through PayPal, credit card, or bank transfer.
- Offering early payment discounts – Clients will always be willing to settle invoices that save them money early. You can leverage the pricing model most successful SaaS businesses use to incentivize payments – offering customers discounts if they pay for your services for a couple of months in advance.
Set Up Payment Penalties and Avoid Waiving Them
There is no better way to show clients how much you value timely payment than setting late payment penalties. No one likes to pay fees, and most clients will walk the extra mile to avoid them. During the initial payment discussions, be sure to voice your late payment policies.
Clients should know whenever they are approaching the deadline for late payment. You can allow a leeway period after the due date for your late payment policies to take effect. In case a client is late, avoid waiving the fee to create a clear understanding between you. However, you can waive the fee in rare and understandable circumstances.
Establish a Great Rapport with Clients
Clients who feel that you are on their side are highly likely to settle invoices early. Take time to know your clients and everything that makes them and their business tick. Having great relationships with clients makes it easy for you to upsell other services to them, or for them to refer you to other clients. In case of delays, negotiating payment plans becomes easy as long as you have a great relationship with the clients.
Your business’ survival is mainly dependent on how soon clients settle their invoices. The faster you have your cash at hand, the easier it is to make decisions and scale your business. Use the tips above to avoid joining the 82-percent club (companies that fail due to poor cash flow management).