Late payment is a problem that plagues the cash flow of many merchants and is one of the fastest ways to go out of business. Regardless of how successful or established, a major part of your job as a trader is to ensure that all transactions are completed on time.
Of course, the billing policy you’ll employ will depend on your type of business. If you run a large-scale enterprise, for example, your clients will likely expect to be given at least a few weeks to pay their invoices. And although you’re often left with no choice, agreeing to their demands means exposing yourself to the risk of late payment.
Nonetheless, the measures below can help you to ensure your cash flow remains healthy.
- Set and enforce your payment terms
Customers may dictate more than a few aspects of your business, but don’t allow them to influence your billing structure directly. If your plan is to accept payment when you deliver the goods, you shouldn’t change it just to appeal to a potential customer. And when your clients can’t pay upfront, ensure they adhere to the time you’ve allowed them to take before completing the invoices.
- Vet new customers
Before agreeing to do business with a new client, gather a bit of background information. A shaky credit history should serve as a red flag, indicating to you that the customer cannot be trusted to make payments on time. Many credit recording companies offer such data to small businesses at affordable rates.
- Chase invoices
Your customers could be waiting until the last minute, not because they lack the funds to service the bills, but because they’re as concerned with their cash flow, as you are with yours. It is therefore up to you to apply at least a little pressure. Sometimes a phone call or email will be enough to facilitate prompt payment.
- Have a contingency plan
Regardless of your pending invoices, you still have your bills to pay and operating expenses to fulfill. Without a backup policy in place, late payments can eventually stagnate your business. Maintaining a “slush fund” will ensure you don’t run out of cash when your customers take longer than usual to make payment.
Alternatively, you could apply for a cash advance from a reputable financier like First American Merchant, and use the money to cover essential expenses such as wages, rent and minimum inventory
- Invoice factoring
When you’re hard pressed for funds and your clients are letting you down, consider selling your invoices to a factoring firm. These companies will pay you the cash corresponding to the invoices, minus a pre-agreed service fee.
Through factoring, you’ll have the immediate funds to cater for business expenses, while also escaping the hassle of chasing invoices.
Takeaway
If not managed correctly, late payments can be detrimental to your business. With the above tips, however, you can avoid the financial problems and maintain a healthy cash flow.