As a business owner, you know that cash flow is crucial to the success of your company. And one of the biggest obstacles to maintaining a healthy cash flow is dealing with outstanding invoices.
When customers fail to pay their invoices on time, it can create a domino effect, causing delays in your own payments and disrupting your business operations. That’s why it’s essential to have a plan in place for resolving open invoices. In this article, we’ll discuss some strategies for successfully resolving open invoices and keeping your cash flow on track.
Why Are Open Invoices a Problem?
Before we dive into solutions, let’s first understand why open invoices can be such a problem for businesses.
Cash Flow Disruptions
When customers don’t pay their invoices on time, it can create a cash flow gap for your business. This can lead to delays in paying your own bills and suppliers, which can ultimately harm your business’s reputation and relationships.
Increased Administrative Workload
Tracking and following up on open invoices can be a time-consuming and tedious task. It can take away valuable time and resources from other important business tasks.
Potential for Bad Debt
The longer an invoice remains open, the higher the chances of it becoming a bad debt. This means that the customer may never pay the invoice, resulting in a loss for your business.
RELATED: The Impact of Poor Cash Flow Management on Your Business
The Best Ways to Settle Open Invoices
Now that we understand the impact of open invoices, let’s explore some strategies for resolving them.
1. Set Clear Payment Terms
One of the best ways to avoid open invoices is to set clear payment terms from the beginning. This means outlining your payment expectations in your contracts and invoices.
Be specific about when payment is due, what forms of payment you accept, and any consequences for late payments. This will help set expectations and avoid any confusion or misunderstandings.
2. Send Reminders and Follow-Ups
It’s essential to have a system in place for sending reminders and following up on open invoices. This can be done through email, phone calls, or even automated reminders through your accounting software.
Be sure to send reminders a few days before the invoice is due and follow up promptly if the payment is not received on time. This will show your customers that you are serious about receiving payment and may prompt them to pay sooner.
3. Offer Incentives for Early Payment
Consider offering incentives for customers who pay their invoices early. This could be in the form of a small discount or a gift card. This can motivate customers to pay sooner and help improve your cash flow.
4. Consider Payment Plans
If a customer is struggling to pay their invoice in full, consider offering a payment plan. This can help them pay off the balance over time, rather than leaving the invoice open for an extended period.
Be sure to outline the terms of the payment plan clearly and have the customer sign an agreement. This will help protect your business and ensure that the customer follows through with their payments.
5. Utilize Technology
Technology can be a powerful tool for managing open invoices. Consider using accounting software that allows you to track and follow up on open invoices, send automated reminders, and even accept online payments.
This can help streamline the process and save you time and resources. Plus, it can provide a more convenient payment option for your customers, increasing the chances of receiving payment on time.
6. Consider Hiring a Collections Agency
If all else fails, you may need to consider hiring a collections agency to help you collect on open invoices. These agencies specialize in collecting outstanding debts and can be a useful resource for businesses struggling with unpaid invoices.
Just be sure to do your research and choose a reputable agency with a track record of success. You may also want to consult with a lawyer before hiring a collections agency to ensure that you are following all legal guidelines.
RELATED: Maximizing Cash Flow with Effective Collection Strategies
Examples of Successful Open Invoice Resolutions
Let’s take a look at some examples of businesses successfully resolving open invoices.
Jessica’s Staffing Company
Jessica owns a small temporary staffing agency and has tried sending reminders and following up, but the customers still haven’t paid. Jessica decides to offer a small discount for early payment to these customers. This motivates them to pay sooner, and Jessica is able to resolve the open invoices and improve her cash flow.
John’s Manufacturing Company
John’s manufacturing company is facing a cash flow gap due to numerous outstanding invoices from a major client. Despite John’s efforts to prompt payment through reminders and follow-ups, the client has not settled the outstanding amount.
In response to this situation, John opts to leverage invoice factoring, which involves selling the unpaid invoices to a third-party financial institution at a discounted rate. This immediate infusion of cash allows John’s company to address its cash flow needs promptly, while the third party takes over the responsibility of collecting payment from the client.
By choosing invoice factoring, John’s manufacturing company can efficiently manage its financial resources, ensuring a steady cash flow and mitigating the impact of delayed client payments.
RELATED: Why Do So Many Manufacturing Companies Factor Their Sales Invoices?
Who Is Responsible for Resolving Open Invoices?
In most businesses, the responsibility for resolving open invoices falls on the accounting department or the business owner. However, it’s essential to have clear communication and collaboration between the sales and accounting teams to ensure that invoices are paid on time.
Takeaways
Open invoices can be a significant obstacle for businesses, but with the right strategies, they can be resolved successfully. By setting clear payment terms, sending reminders and follow-ups, offering incentives, utilizing technology, and considering payment plans or collections agencies, you can improve your cash flow and keep your business running smoothly.
Remember, communication and collaboration between departments are crucial for resolving open invoices and maintaining a healthy cash flow. With these strategies in place, you can ensure that your business is not negatively impacted by outstanding invoices.
Improve Your Company’s Cash Flow
Whether your company is experiencing rapid growth that’s becoming challenging to manage, or if you’re dealing with delayed client payments, Universal Funding is here to support your expanding business. Reach out to Universal Funding today by calling (800) 405-6035 or by filling out our rate request form to discover how we can enhance your company’s cash flow.
