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Stay on Top of Invoices for Steady Cash Flow

Late-paying customers are often one of the most significant challenges that small business owners face. Even though you might think that people will pay you on time for an excellent service, there are a lot of people who will stretch their credit as far as they can, and some won’t pay you at all if you do not chase them.

Some business owners are reluctant to come down too hard on late-paying customers. But unpaid invoices will drain your cash flow preventing you from growing your business. So, here are eight rules that will help ensure you keep on top of accounts receivable.

1. Credit Check All New Customers

Efficient credit control begins before you even raise the first invoice. Always do a credit check on all new customers and ask for references from other suppliers as a part of your new account application procedure. A bit of background checking will help to avoid taking on bad or risky customers. Credit checking is also crucial to help you avoid becoming the victim of a fraud.

2. Set Low Initial Credit Limits

Set and enforce credit limits for all your customers. And, when you take on new customers, keep the credit limit low until you are confident that your invoices will be paid on time. If a new customer is a well-known and well-respected corporation, you may want to set a higher initial credit limit. But, if the customer is not known to you, it would not be advisable to accept any substantial orders from them until they have proven their creditworthiness.

 

Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay their invoices, Universal Funding can help your growing company. Call us at 800-405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.

 

3. Make it Clear You Take Collections Seriously

Make it clear to all new customers that you expect to be paid on time. Have your credit terms visible on contracts, order forms, sales invoices, and on your website. You may not want to make a big issue out of your collection policies during the sales process. However, the subject of credit terms should still be discussed as a part of any sales negotiations. The timely payment of invoices should be a part of the agreement that you are reaching with a customer.

4. Make It Easy for Customers to Pay You

Make it as easy as possible for customers to pay their invoices by offering multiple payment options. You could, for example, allow payment by check, bank transfer, credit cards, and PayPal. You should also state the payment methods that you accept on all your invoices, on customer statements, and collection reminders.

5. Chase Customers as Soon as an Invoice Becomes Overdue

Chase customers for payment as soon as an invoice becomes due, or shortly after the due date. If you postpone reminding customers about paying by a week or two, your customers will become used to your collection timetable and continue to pay you later.

6. Stop Supplying Seriously Overdue Customers

If you continue to supply a late-paying customer, the debt will only get larger. And, if that customer is experiencing financial difficulties, you will be increasing the amount of the potential bad debt. Of course, all the collections actions you take should be a gradual process of increasing severity. How quickly you apply any sanctions against a customer will depend on the nature of your business and the relationship you have with a customer.

7. Charge Interests on Overdue Invoices

Charging late fees can be an effective way to ensure that customers pay on time. Charging interest on overdue invoices can also be a useful weapon to wield when you are making your collection calls. Once again, you may prefer to charge late fees on a discretionary basis. If your best customer goes one day over your late fees date, for example, you may want to allow extra time before you charge the fees. You may also want to consider offering early settlement discounts as an incentive for customers to pay you early.

9. Be Firm. Be Consistent

The most fundamental rule of collections is to be firm and consistent with your approach. Get yourself into a routine of checking your accounts receivables regularly and get straight on the phone if someone hasn’t paid you on time. Staying on top of your outstanding sales invoices will improve your cash flow. And, contacting late payers as soon as they become overdue will help to avoid the need for taking legal action later.

The Bottom Line

If you keep on top of your receivables, you will find them easier to manage. And, if you consistently apply the above rules, customers will come to understand that you are serious about your collections. But, if you are inconsistent with collecting what it is owed, it will be your invoices that will likely end up at the bottom of your customer’s to-be-paid list and your cash flow will suffer the consequences.

About Universal Funding

Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days