One of the most vital parts of running a small business is getting paid on time. Cash flow is everything, and prompt payments are a lifeline. So, what do you do when clients refuse to pay, or are slow to tie up invoices? These simple tips should prevent unwanted delays and difficult customers from damaging your business.
- Write a contract. Even if your client’s a friend, don’t rely on a verbal agreement. An official contract prevents misunderstandings. It lays out the work you’ve both agreed on, when and how you’ll be paid, and what will happen if there are any disagreements.
- Take a deposit upfront. Take away the risk of a new client challenging your invoice, or avoiding payment, by taking some money before you start any work. It shows clients you’re running a professional business that wants to protect its interests, but also limits the risks involved in taking on new clients.
- Send your invoice quickly. When it comes to getting paid promptly, set a good example by sending your invoice out as soon as the work is done.
- Use penalty clauses. Nothing gets a client to pay promptly like a payment penalty. Try introducing a flat fee which kicks in once a customer misses their payment deadline. Or you could charge them interest on the overdue amount and add it to their charges.
- Use a payment incentive. Give a slight discount for paying early. If you want the invoice paid in 10 days, give a 2% discount. If the invoice pays in net 30, then the discount doesn’t apply.
- Consider factoring your invoices. Factoring your invoices is an excellent way to increase your cash flow. Once the work has been completed submit your invoice to the client and then to a factoring company like American Funding Solutions. We will pay 80% of the invoice within 24 hours and then the rest minus a small fee once the invoice has been paid. This is a great benefit to a small business who has slow paying customers, but still needs to make payroll each week.