We’ve all had a certain kind of phone call: a firm, hopefully polite request to remit payment for some or other expense. It’s never fun to receive a request for payment, and for many small business owners, the discomfort around collections extends to situations where businesses need to collect unpaid invoices that may be piling up.
In fact, according to the National Federation of Independent Businesses in the United States, slow or late payments are the most significant issue businesses encounter when it comes to their cash flow. According to new data from Fundbox, small businesses not getting paid for their products or services has a direct impact on their ability to hire, as well: of the six ways the survey found that unpaid invoices adversely impact small businesses, hiring is the number one ranked concern.
Start With A Contract
Whenever setting up an agreement with a new client, your contract should have clear guidelines around the services you promise to perform as well as the payment terms for those services. Even just the basics like “we will do this” and then “you will do this” and getting that captured on paper can be better than nothing. However, it’s best to work with a local attorney who understands your business when creating such a contract, in order to make sure that all the relevant items are addressed in the proper language.
Stay In Control (Emotionally)
Late payments can be deeply frustrating, but the best tactics don’t involve leaving scathing phone messages for your clients, or calling them repeatedly until their phone message box is filled up. Being hostile may damage or destroy the debtor’s desire to work with you in making payment on an overdue account. It’s also wise to make sure you have followed all the correct procedures before going after an invoice that has not yet been paid.
Incentivize Early Payment
A little bit of incentive can work wonders to get clients motivated to keep their unpaid invoices sorted on time. You may consider offering a small percentage discount if a client pays within a certain time frame. For example, customers who pay within 10 days receive 2% off the pre-tax invoice. Likewise, you might consider charging late fees on past-due invoices – but make sure any such fees or incentives are clearly set out in your contract beforehand!
Consider Whether It’s Time to Move On
At a certain point, it may no longer be worth your time and energy to try to collect unpaid invoices. Although it’s unfortunate, there may be times that it’s in your interest to call it a loss and move on. If the amount owed is truly worth the investment of extra effort, consider involving a third party – such as a legal representative or a collection agency – to help you collect what you’re owed. Many collection agencies only charge you if they are successful and often their fee is a percentage of what they collect. Your time has value, and you should spend it running your business and making the present moment – and the future – the best it can be.
Plan Your Cash Reserves
Much like an individual who is planning their personal finances, it’s wise to keep an “emergency fund” for your business to deploy in the event that an expected payment goes wayward – enough money to cover the routine costs that would otherwise need to be addressed in your business if unpaid invoices start to crop up. If your business is seeking an addition to its cash reserves for such purposes, give us a call or visit www.merchantadvance.com.