When you look at your client list, what comes to mind first - the person or their payment habits? Do you avoid calling a past due client because you don't want to hear another excuse? Are your own bill-paying habits becoming tardy due to lack of funds from outstanding invoices? There are a couple ways to help keep your cash flow flowing.
First, to avoid problems with payments, avoid problem customers.
· The most powerful predictor of payment performance is payment record (current and past), so check new prospects’ references if possible.
· Credit ratings based on financial strength have no bearing on future payment performance—another reason why you need to check references.
· Revenue is not a good indication of good payment performance.
· The greater the firm’s net worth (total assets less liabilities) and time in business the more likely it is to pay. Building real net worth takes years.
· Most businesses fail in the early years, so the longer a firm is in business the more confident you can be of receiving timely payments.
· The higher the percentage of accounts a customer has paid within 90 days, the greater the likelihood that you will receive prompt payment.
· A predictor of future poor payment is the number of accounts past due 90 or more days.
· A customer’s or prospect’s prior bankruptcies and tax liens may signal that you will have great difficulty getting paid.
· Apply for merchant services to get paid faster - if a client is willing to give you their credit card, it may be worth the percentage to get the money in-hand right away. Don't be afraid of the fees - but find a service that does not have a monthly fee. We like Intuit Merchant Services or Paypal or Stripe.
Second, be clear about payment expectations:
· Make sure that your invoices clearly state at the top when they are due. Put the amount due in large or bold print. Also, it's helpful to state "Due Upon Receipt."
· Don't make the invoice too long or difficult to read. Keep it simple - the less time they need to review and question it, the better.
· Simplify your bookkeeping by using QuickBooks or Xero to generate invoices. If you have QuickBooks Intuit merchant services, it can send an invoice with a "click here option" for clients to pay immediately.
· State clearly in the footer of the invoice or statement what the penalty or finance fee is and when it will be applied. This is a deterrent for those who may set your invoice aside for later. Remember to follow up by resending the statement or invoice with an e-mail tag line that says "Past Due - Finance Charge Has Been Applied."
Remember to keep in contact with your clients other ways, too, aside from invoices. Hopefully this will change what comes to their mind first when they hear from you!
And, of course, keeping a healthy bank balance helps you sleep better because you're counting income instead of sheep. :)
Lynn Talbott, MBA, PHR, has over 20 years’ experience consulting with entrepreneurs of small to mid-sized businesses in the HR and office management capacity. Her specialty is Office/Human Resource Manager coaching and training and finding practical solutions for bookkeeping errors and HR blunders. Lynn has helped manage over 50 business start-ups and many of those companies continue to rely on her expertise today as they continue to grow.