Any small business owner will know the struggle of time – being short on time, and not getting paid on time. It’s often easy to forget the importance of back office functions, particularly invoicing and debt collection processes. Luckily, if you take the time to streamline these processes, the amount of time wasted chasing late payments will reduce dramatically.
Even if the individual debts owing to your business are relatively small, they can start to snowball once added up. In order to pay staff and expand your operations, cashflow is imperative, so not taking immediate action in collecting these piling debts could lead to bigger problems within your business. To avoid the worst case scenario, how can you prevent late payments?
Recognising distressed debts
There are many contributing factors that lead to bad debts within your business. Simple missteps, like having incorrect contact details for your customer, can prevent any contact or collection in the future. Additionally, leaving debt collection to the last minute, can lead to the customer believing they’ve evaded payment. Ultimately, it comes down to how efficient your invoicing terms and debt collection processes are internally, so it’s important to make sure you are constantly reviewing these.
Crystal clear terms
Businesses are less prone to unpaid invoice issues if they are upfront in setting expectations with customers. From your first meeting onwards, be crystal clear with your credit terms to avoid any confusion along the way. This will also set expectations with customers around payment before you even begin work. Make sure you provide specific terms in writing, so they can’t be contested later on. Think about accepted forms of payment, different late payment penalties, and most importantly the due date.
Consider short payment terms
It’s as simple as – the shorter the payment term, the sooner you will get paid. As a small business owner, you don’t need to feel bad about asking to be paid quicker. Depending on their circumstance, certain customers might expect a longer payment term, however it’s always important to negotiate. If a customer asks for a discount, consider asking for a faster payment to return the favour.
Don’t be late
If you’ve put all the effort in communicating your terms ahead of the due date, it all goes out the window if you don’t send invoices on time. Time is money in every small business, so delaying invoicing negatively impacts your cash flow in the long run. Ensuring invoices are sent out on time will help to stabilise cash flow throughout the whole year.
Pick up the phone
Another way to ensure that your collection processes are as efficient as possible, is to reconsider handling invoicing issues via email. Although email correspondence is quick and easy in this digital age, don’t underestimate how easily your invoice can get lost in an overflowing inbox. The old-fashioned route in picking up a phone can ensure direct contact with your customer. It also gives your customers the impression that late payments are not considered lightly in your business.
Keep the conversation going
When payments become overdue, remember to send reminders. This is tricky, as chasing late payments can often become uncomfortable. Many small business owners are worried about upsetting their customer, however at the end of the day, this mindset will contribute to a higher risk of bad debts. The customers worth keeping are the customers who respect efficient credit and collection operations.
It’s very easy for late payments to spiral out of control, and negatively impact many functions of any small business. Therefore, it’s integral for small business owners to be at the forefront and take charge to implement processes that ensure they are being paid in full and on time.
Roger Mendelson has more than 43 years’ experience operating Australia’s largest (by client number) privately owned debt-collection company, Prushka, which collects debts for over 57,000 small-to medium-sized businesses as well as major Australian companies across Australia.