Our status as a factoring company affords us the opportunity to work with all types of businesses looking to convert unpaid invoices in the cash. It is not unusual for our staff to hear about the invoicing and collection problems our clients are facing.
The truth is that every business runs into them from time to time. No matter what industry your company is involved in, there are always customers that are slow to pay. The thing to remember is that just one or two slow payers can create a cascading effect resulting in unpaid invoices well down the line.
Whether or not factoring your invoices has brought you to our website, there are things you can do to improve invoicing and collection for creating better cash flow:
1. Minimize Terms as Much as Possible
It has been our experience that longer terms create bigger challenges. The longer you wait for payment from your customers, the more likely you are going to have cash flow problems. So what can you do about it? Minimize terms as much as possible. Net 10 days is certainly better for your business than 30, 45, or 60 days.
2. Bill Your Customers Promptly
Factoring invoices has given us insight into how so many business owners handle billing and collections. It is not uncommon for companies to send out invoices just a couple of times per month. Though biweekly billing may seem more efficient, it does increase the length of time it takes to get paid.
Companies are better off generating bills immediately upon product or service delivery. As soon as the customer has been taken care of, a bill should be generated. It should then be sent digitally or put in the mail the same day.
3. Establish and Enforce Late Fees
Nothing prompts payment faster than facing a late fee. Even late fees as small as 2% can be quite motivating to business owners who prefer to pinch every penny. The point here is to establish and enforce late fees without exception. If you don’t already utilize late fees, be sure to let your customers know before implementing them. Give your late payers one last opportunity to get caught up.
4. Schedule Regular Payment Reminders
Regardless of your terms, you can never go wrong sending out scheduled payment reminders. Reminder notices keep those invoices at the forefront of your customers’ minds. They are more likely to pay on time when they are regularly reminded to do so.
5. Offer Early Pay Incentives
Just like business owners tend to cringe at late fees, they are all smiles when they can get a discount on what they owe. Use that to your advantage. Try offering an early pay incentive to get your customers to settle up as soon as they get their invoices. It doesn’t have to be anything big. It just needs to get your customers’ attentions.
As you think on all of this, we also recommend establishing a relationship with an invoice factoring company. Factoring your invoices can improve collections by forcing your customers to have to deal with a third-party rather than your accounts receivables team.
Invoice factoring also gives you access to financial resources when slow payers don’t come through. You essentially get the best of both worlds in a single package.
There will always be slow payers. But no company needs to encourage them through poor billing and collection practices. Get your billing and collections up to par and you may be pleasantly surprised with a reduction in the total number of slow payers you have.