BE OPEN FROM THE OUTSET
To avoid overdue payments, it’s important to establish clear expectations from the start.
When meeting with clients for the first time, be open and upfront about your terms and conditions. Many small and medium-sized businesses (SMBs) are reluctant to discuss money, but this can lead to misunderstandings and payment disputes down the line. Instead, ensure that all quotes, estimates, contracts and related documentation clearly outline your terms and conditions in writing. This should include details on how and when payments are expected, any penalties for overdue payments and any additional fees that may apply to payments.
By being transparent and upfront about your expectations, you can help minimise the risk of overdue payments and ensure that your business is paid on time.
When it comes to managing cash flow, asking for a deposit upfront can be a smart move.
This is particularly relevant for businesses that rely on expensive raw materials or that have high overhead costs. By including a deposit clause in your contracts, you can ensure that you have the necessary funds to cover your expenses and avoid carrying the bulk of the financial burden.
The deposit amount should at least cover the cost of your raw materials, but it could also include a percentage of the total project cost. Additionally, setting clear terms and conditions for the deposit, such as the payment deadline and refund policies, can help reduce payment disputes and ensure that you are paid for the work you do.
So, if you’re looking to improve your cash flow and minimise financial risk, consider incorporating a deposit into your business model.
INVOICING AND PAYMENTS
When it comes to invoicing and payments, it is important to be clear and transparent.
This means invoicing on a regular basis and including all necessary details. Your invoices should clearly state the details of the goods or services provided, any order numbers or reference codes, the total amount owing, the due date for payment and the available payment methods.
By providing this information upfront, you can minimise the risk of payment delays and ensure that your clients have everything they need to process payment on time. In fact, missing or incomplete information on an invoice is one of the main reasons companies cite for delaying payment.
So, make sure your invoices are clear, accurate and include all the necessary details. This can help you receive your payment on time and avoid unnecessary payment disputes.
INCENTIVES FOR EARLY PAYMENTS
Offering incentives for early payments can be a terrific way to improve your cash flow and encourage prompt payment from clients.
One common incentive is to offer a discount of between 5% and 10% of the invoice total if the payment is made prior to the due date.
While this may seem like a significant amount, it is important to consider the benefits of advance payment such as reduced costs associated with collections and improved cash flow. By offering this type of incentive, you can create a win/win situation for both you and your clients.
Your client benefits from the discount while you benefit from improved cash flow and reduced administrative costs.
So, if you are struggling with overdue payments and cash flow issues, consider offering incentives for early payments. It could be just the thing you need to get your business back on track.
PENALTIES FOR LATE PAYMENTS
While it is important to incentivise prompt payment, it is also important to have consequences for overdue payments.
You can include penalties for overdue payments in your contracts or terms and conditions. However, it is crucial to approach this carefully and strike a balance between enforcing the rules and maintaining good relationships with your clients.
If you are too strict with penalties, you risk damaging ongoing relationships and potentially losing future business. To avoid this, it is important to ensure that timely reminders are sent to clients and that penalties are applied consistently and fairly. By doing so, you can encourage prompt payment and minimize the risk of payment delays without jeopardising your client relationships.
If you are considering implementing penalties for overdue payments, be sure to approach this carefully and communicate your policies clearly to your clients at the beginning of the relationship.
Despite your best efforts, there will still be clients who fail to pay on time.
In such cases, it is important to have a clear and effective debt collection system in place to help you recover the outstanding payments.
This system should involve a step-by-step plan for dealing with overdue payments starting with a reminder letter or email to the client. If the payment is still not received, a follow-up phone call may be necessary to remind the client of the outstanding balance and the due date for payment. If these measures fail to yield results, it may be necessary to escalate the matter further with a letter of demand for payment.
By having a clear and structured debt collection system in place, you can improve your chances of recovering outstanding payments and minimise the impact of overdue payments in your cash flow.
So, if you are struggling with overdue payments, consider implementing a debt collection system to help you stay on top of your accounts receivable and improve your cash flow.
COVER YOUR CASH FLOW
Overdue payments can cause significant cash flow problems for small businesses so it’s important to have a plan in place to cover these gaps.
To anticipate and prepare for overdue payments, organise flexible financing options that can be used when needed. This may include setting up a line of credit with your bank or exploring invoice financing options that allow you to access cash based on your outstanding invoices.
By having these options in place, you can ensure that you have the cash flow you need to cover expenses and keep your business running smoothly even if clients pay late.
If you are worried about the impact of overdue payments on your cash flow, consider exploring financing options that can help you cover these gaps and keep your business on track.
REAP THE REWARDS
Implementing strategies to manage overdue payments can be challenging at first, but the benefits are worth it.
Our business clients, Joel and Donna for example, were initially hesitant about the extra work involved to sort out their cash flow problems. However, once they established processes and systems to manage their cash flow, the rewards were significant.
Their business now has a more stable cash flow and they are better prepared to weather the occasional overdue payment.
They told us that in the end, the effort was well worth it for their business and their own peace of mind.