When you examine common reasons that most businesses fail, issues with cash flow generally come up every time, for both new companies and the most well-established organizations. As a result, no matter the size of a venture, it’s important to keep a steady hand on the finances and ensure that there is always enough money available to pay bills.
One thing that makes a big difference to cash flow is getting customers to pay on time. While for many entrepreneurs the thought of having to chase clients for money is a very uncomfortable one, there are strategies you can put in place so that you spend less time doing this every month.
From being clear about payment terms to making it convenient for customers and more, it’s easier than you might have thought to encourage clients to pay their bills on time and to enjoy more robust cash flow as a result. Read on for the rundown on five key tactics you should utilize today.
Conduct credit checks early on
The first thing you should do to ensure your customers pay on time is not offer payment terms to everyone. There are simply going to be some undesirable clients who won’t end up paying their accounts if you offer them credit – something that can usually be determined up front through a credit check.
It also pays to ask for the details of at least three other businesses that the customer has dealt with in the past. Then ring each one of these references to find out whether or not the client paid their bills on time or not. There are also companies which provide credit-checking services for a fee that you can use if you don’t have the time or inclination to run the checks yourself.
Set clear payment terms
Next, it is vital that you set clear payment terms and make sure that all of your customers are familiar with them up front. Doing so will automatically help you to prevent a certain percentage of late payments, as you won’t have people taking a month to pay because they think terms are 30 days rather than seven.
Each invoice that you send out to your customers should have the due date on the bill in large, clear font, in a prominent place. Don’t forget to include your bank details, or any other relevant payment information, on each invoice too, so that customers don’t have to go searching when they’re ready to pay.
Make it convenient for customers to pay
Another good way to encourage customers to pay on time is to put a system in place whereby they don’t have to remember to make payment. This can be done through the setup of automated direct debit transactions.
This type of automatic payment processing works well because it saves businesses time and money, and enables them to enjoy regular cash flow. Once you have clients’ details gathered, you simply pass them on to the bank and have them transact all your weekly or monthly ACH payments in one batch, at one time. This means that you don’t have to spend a lot of time putting each transaction through yourself.
Send out reminders
A lot of the time customers pay their bills past the due date purely because they forgot all about their invoices, or because they didn’t actually receive them via email or post to start with. You can therefore instantly reduce the number of late payments you receive if you systematically send out reminders to your clients on a regular basis. You should send the first reminder as soon as the account becomes overdue, and then keep sending one every week until payment is made.
Reminders can be done via phone calls, emails, letters and text messages. While you might decide to set up your own system for this, keep in mind that you will save yourself time and energy if you make use of one of the many available online systems which are designed to do this for you automatically.
Provide incentives for quick payments
Lastly, you will find yourself receiving quicker payments on bills if you provide incentives to your customers to do so. The incentive can vary depending on the business and the industry, but you may find that something as simple as a five per cent discount on all invoices which are paid before the due date gets you results. Alternatively, you might try other benefits to incentivize clients, such as discounted shipping rates, faster turnaround times for deliveries, additional services, or bonus goods.
Dana Wilson is a freelance writer.