The cash flow is the lifeblood of any business; it gives business owners the means to buy the goods they sell and pay their employees. For many small businesses, uncertain cash flow can hold them back from reaching their full growth potential. One of the most common culprits of poor cash flow is late-paying customers. The following strategies however, can get your clients to pay on time:
Terms And Conditions
Set clear payment terms and conditions at the beginning of your relationship with any customer and have these documents signed off. Having agreed terms right from the start can make it easier to chase unpaid debts in the future.
The larger your contract is, the more it is important it is to include payment terms in your agreement. Your terms should include the credit period, a clause that states your right to charge for late payment fees, and a signature to show acceptance of the terms. You may also include a clause that will give you the right to retain ownership of the goods if payments are not made.
You can ask for part of the payment upfront to help keep your cash flow healthy. Doing this can also help to maintain a financial commitment from the customer. You may ask for a 25 percent payment before you perform the service or ship the goods then request that the balance be paid one month after receipt of the invoice.
Some customers may habitually choose not to pay on time, regardless of how much money they have in their bank account. Your recourse is to penalize these clients. One way of doing this is to charge interest on late payments.
Offering your clients a prompt payment discount, such as a 2 percent reduction if the payment is made upon receipt of the invoice, is an effective way of getting your clients to pay on time. The downside of this strategy is that this can take a percentage of your profits so remember that the incentive you offer should be enough to be attractive to your clients but not too much to compromise your profit margins.
Dealing with late payments is one of the most frustrating parts of owning and managing a business. Don’t let cash flow and accounting issues take your focus away from growing your business. Contact us here at ORT Consulting and learn how we can help you with your cash flow management.