Most small business owners will have to deal with slow-paying customers at some point. It is not only awkward and annoying, but it can also cause a serious cash flow problem if too many customers miss their deadlines. Below are some tips and tricks to encourage faster payment from your more sluggish clients.
- Send Online Invoice Right Away
Customers will typically pay significantly faster when you invoice them right after the work is done. For example, if you ever had to pay for something by check, you probably waited a few days until it was convenient for you to go to the post office. It may have also taken you a few days just to pull out your checkbook and find a stamp.
- Set Up a Due Date Beforehand
Set the payment due date beforehand, and then you don’t feel as awkward reminding clients when they’re past due. Many businesses find that 10 or 15 days is a proper amount of time after completion. The formal way to write a due date on an invoice is to say “Net” before the number of days to explain that you want the full amount, known as the “net” amount, to be paid.
- Keep A Credit Card on File
If you have a lot of returning customers, you may want to enter an agreement in which you keep their credit cards on file and charge them for payments yourself. In order to do this, you need their written permission to do so, and you need to make sure you store their information safely and in compliance with PCI standards. Most merchant processing services enable you to store credit card information securely, on top of also processing payments.
- Invoice Factoring
If slow-paying customers are the main cause of your cash flow problem, you can seek a special type of loan for the amount that is owed to you. Known as invoice factoring or invoice financing, these lenders will let you borrow up to $150K with lower interest rates than short-term business loans in exchange for the money that is or will be due on your outstanding invoices.
Lodestar Advisors is a firm focused on tax saving strategies and accounting automation techniques to facilitate business growth for their clients. They are well versed in cash flow projections and business planning. Call for a free consultation.