One of the most crucial factors when minding your business is cash flow, as the in and out movement of money determines the health of your enterprise. To determine if the financial status of a company is smooth sailing, there should be a balanced activity between expenses and revenue. Unfortunately for most businesses, especially SMEs, cash flow gets compromised due to the growing issue of late payments.
Late payments can seem like a singular problem when viewed superficially. But in reality, it tows an array of challenges that can significantly affect the company. Not only does this result in failure to keep up paying your employees, invoices, rent, and other day-to-day operations expenses, but it also makes it challenging to maintain good customer relationships. This makes it a tremendous potential risk to the growth, productivity, and sustainability of the business as a whole.
Problems with cash inflow can pull you backward. It can threaten your business’s survival and, worst may drive you to go downhill and eventually file bankruptcy. However, no one wants to go that way. So, it is vital to ensure that the inflow of your company is always bigger than your outflow.
Read on and learn the top tips for preventing late payments and ensuring that your customers pay on time.
Go digital and consider e-Invoicing
Small businesses, especially those who have just started, usually go for manual invoicing when they don’t have an established process yet, and there are only a few clients. However, when your business expands, doing everything from scratch can be harmful in the long run. It will be time-consuming and can make your accounting department prone to errors like disorganization, lost invoices, and duplicate payments.
When invoices are created and sent manually, it takes additional time to send payment reminders to your customers via email or follow-up calls to ensure that they pay on time and that overdue invoices do not jeopardize your company’s cash flow. Thankfully, our digital economy has made it possible to automate business processes, making managing all payables and receivables easier with innovative systems that can also offer more accounts receivable automation benefits.
With automation being proven to deliver more streamlined, time-saving, and effective collection solutions, many businesses are now using electronic invoices rather than sticking to the old method.
With the right credit control software, you can ensure that all your accounts receivables are comprehensively handled, and processes such as creating invoices and sending payment reminders are timely and effectively managed. This will help you ensure that your customers avoid late payments, increasing your inflows.
Charge Interest on Late Invoice Payments
There are several reasons customers fail to pay on time. It can be that they don’t have the money yet or for other personal reasons. But since they are under such a financial obligation, it is only fair for an enterprise to establish a late payment policy to save the business from taking a hit.
One way to get your cash flow back on track is by charging interest or a late payment fee, which can be a flat rate or a percentage of the amount the customer owes you. Many businesses charge late payment fees for two reasons. First, it can serve as a window to allow the customer more time to pay for what they owe, encouraging them to communicate if they cannot fulfill their financial responsibility on time. Second, this can give customers a slight push to motivate them to pay timely, or they will be at risk of paying more instead of just spending the amount they owe.
Make it Easy for your Customers
Convenience is one of the top factors why customers patronize a business. This is no exception with payments. Providing accessible payment methods to your customers can encourage them to pay on time rather than set your invoice aside due to a lack of payment options.
Imagine a customer clicking on your electronic invoice only to find out that they have to take more complicated steps to settle their bill. Remember, the easier it is for your customer to pay the due amount, the earlier you get paid.
To make payment easy for them, you may consider including a ‘Pay Now’ button in your invoice with different modes of payment such as credit cards, mobile payments, or an option to opt for auto-pay. Not only does this make it easier for them to remember when their payments are due, but it also allows them to save time.
Value Customer Relationship
When a customer misses a payment deadline, take note that it is also essential to take some steps that can avoid damaging your customer relationship. Make sure to send a payment reminder with the invoice attached to gently remind them just in case the reason for the late payment is losing the original invoice, or they just forgot the deadline. Communicating well with your customer is vital to optimising customer relationships.
Also, consider important points when charging a late payment fee, including mentioning this in your late payment policy, imposing a fair and reasonable amount of interest, and staying within the bounds of the law. If you are unsure of what is compliant with the law in your area, you can always seek legal advice.
Maximizing your cash flow and maintaining good customer relationships can be challenging. But with the use of best practices to encourage your customers to pay on time, you can eliminate the risk of having a negative impact on your business’s financial health.
While getting paid timely is vital to your business, establishing a strong relationship with your customers also matters. So, aside from ensuring a clear and visible payment policy, remain friendly and polite. This will help you retain customers and, at the same time, increase your inflows contributing to smoother business performance.
Alexia is the author at Research Snipers covering all technology news including Google, Apple, Android, Xiaomi, Huawei, Samsung News, and More.