Avoid Cashflow Problems, How to Get Your Money
It’s a widespread problem that a lot of small and startup businesses have: customers that have your goods or services but haven’t paid yet. You have done the work or delivered the goods but your customer is slow to pay you. Because everything else needs to proceed and you have bills to pay, goods to procure you can get behind in paying your bills too. This is not just anoying but some companies just go down for this very reason. You can improve the situation:
Remembering that you are a provider of credit
If you normally invoice after you do the work you basically extend credit to the customer. If the price of your goods or service is high enough you should consider doing a credit check on your customer before you supply the goods or start the work. This will reveal the amount of risk you take. For instance if the company you are about to start work for is in financial trouble. That way you can avoid problems later by requesting part of full payment up front. Online Credit Checks can usually be done for very little.
Give your invoices a due date
An invoice should always have a due date. Many home based businesses have no formal process for handling their invoicing. They spend some time creating their invoice but forget some of the basics, like making it easy to pay by providing one or more payment methods and above all a due date. If your customer receives your invoice, it can go on the “act now” pile or “do later” pile. Make it easy for them to put it on the act now stack by providing all information and maybe even an incentive to pay immediately. You don’t want your invoice to be on the do later pile, it might get done only months later, and costing you valuable time and energy by chasing up the invoice.
So always give your invoice a due date. The due date should be 2-3 weeks from the delivery date. Make the due date stand out on the invoice. Your customer will see the deadline and there is a good chance that they will see you’re professional and mean business. This will increase the chance that it’s your invoice that ends up higher on the pile of things to do. If you do not receive payment just ring them up a day after the due date (put it in your diary) an ask the customer if they realised that the due date was yesterday. This friendly reminder will no
rmally do the trick. You have just brought it to their attention in a friendly way that this invoice is the one that they just cannot get away with.
You have to check the law in the country where you live but sometimes you can start charging fees or interest if an invoice is overdue.
Try debt factoring
With debt factoring you can sell your invoices to a third party who special
ise in invoicing and collection. This works very well for some businesses and is worth considering especially when getting paid is a problem for you. The debt factoring company will pay you immediately and yo don’t have to wait for your customer to pay you.
You are considering this route, you can try to only sell the invoices that are overdue to the debt factoring company. And you should also check out that the debt factoring company is treating your customers fairly, just like you would. Afterall you don not want to be losing customers because of your invoicing strategy. If you do only that part of your invoices that are overdue and not all you let the debt factoring agencies act more like collection agencies.
About collections agencies
Your last resort is to sell the invoice and thus the debt to a collections agency. These agencies normally charge around 10% of the invoice value. A collection agency will normally act more intimidating, trying to get the customer to pay but will ultimately take them to court. Check the agency out before you take this route. Make sure the collection agency is a reputable one, you don’t want them to do anything that is illegal, which could backfire.
Always talk to the customer first and explain your situation, there might be a genuine reason for them to not pay the bill and they might be willing to pay in installments or come up with another acceptable solution. Forcing them to go out of business is not good for all of you. You probably loose the invoice value and certainly lost the customer.
Settle your invoice
At some point in your business career it is likely that a company owes you money and it is in serious financial problems. Your invoice or invoices is in a pile of other ones and the company looks to go down. You could ask them to settle the invoice for a lot less than the original invoice value. It’s better to get something and cut your losses than risk getting nothing. It’s not a good situation for both sides to be in, but maybe just giving them a break and reducing their invoice will help keeping them afloat.
Get paid upfront
Some businesses have no problem at because they get paid upfront. Think about it. Maybe it’s uncommon in your particular industry, but maybe you could make it attractive for the customer or be quicker on delivery or have an alternative online that is cheaper but is paid upfront.
To your success.