Maintaining cash flow is of extreme importance to a business. Without the necessary funds to run a business, eventually, entrepreneurs fall deeper into debt, with some having no other choice but to end their business or file bankruptcy. When cash is low, the ability to pay workers, your lease, keep the lights on, or even invest in marketing to gain new customers becomes impossible. One of the biggest problems entrepreneurs have with managing cash flow – late or incomplete customer payments.
When you provide a product or service and invoice your customers for it later, you’re taking a huge risk. The hope is that if you provide quality goods and services that your customers will uphold their end of the bargain and pay. When they don’t follow through, however, it makes cash harder to come by, which as you can see from above, leads to serious financial issues for your business. In the meantime, if you’re having trouble accumulating cash to keep your business afloat, you can always look into factoring. You’ll need to find a factoring company who caters to your industry like a truck factoring company does for independent truck drivers. They will supply you with the upfront cash for your outstanding invoices until you’ve collected on them. This can help you get out of a jam while you focus on more long-term solutions for dealing with late paying customers.
The best way to deal with this is to first determine why your customers aren’t paying on time and assessing what can be done to resolve the matter.
The client has a dispute – your customer may not be satisfied with what they’ve received from you. You can remedy this problem by openly communicating with your customers. Give them a grace period for returns and a contact number so they can voice complaints about service. If you can come to resolve, they may be willing to pay the bill.
They just forgot – life isn’t always smooth sailing and it could be possible that your customer is going through a difficult time and they simply forgot all about the invoice. This is why when managing your invoices you need to send them out in a timely fashion along with follow-up emails and reminders so that they don’t forget about the upcoming due date.
They’re broke – perhaps your customer bit off more than they can chew when they requested your products or service and now they can’t afford to pay. You can help clients like this out by offering easier methods of payments. If they can break their bill down into installments, it will fit into their budget prompting them to pay it.
They don’t care – unfortunately, there are some customers who simply don’t care about paying a bill. They already received the products or services, and they’ll get around to paying you back if and when they want. You can generally tell this if a bill is more than 120 days past due. You can minimize the chances of this happening by establishing eligibility requirements that include credit checks. If a customer has a history of failing to pay on time, perhaps you’d request a deposit or not extend credit to them at all.
Managing your cash flow is imperative to the health and success of your business. If you’re having a difficult time getting your customers to pay up on time, you need to evaluate your payment process and find ways to resolve the matter. In the meantime, remember, it’s always good to have a backup plan like dipping into company emergency savings or using a factoring company to tide you over.