Nearly every business will struggle with cash flow problems at some point or another. The challenge is when your client's cash flow struggles affect your business' cash flow. You do have options to deal with slow-paying clients including collections, writing off their accounts, or even firing them as a client. If you're stuck trying to decide what to do next, have you considered how late paying clients put your business at risk?
Company Survival Depends on Cash Flow
Some businesses will remain true to a client, no matter how late they pay. In the name of honoring valuable business relationships, the client's payment is always "better late than never". However in business relationships, just like personal ones, you may start to feel that you are being taken advantage of or overburdened.
Unpaid accounts can devastate your cash flow. Without cash reserves, your business may struggle to pay vendors, employees, taxes, or cover any overhead that is required to run your company. If you're unable to actively run your business because your clients aren't regularly paying on time, it's time to do something about it. Get down to brass tacks, take back your power and do what you can to save your business.
How to Get Paid Faster
The best way to get paid quicker is to understand why payments are regularly late. Is there something broken in your own process or is it sloppy accounts payable on your client's end? Here are a few questions to consider:
Red Flags: Is the client a good fit for your business? Are there glaring red flags that may mean the client needs to be fired?
Contract and Payment Terms: Are your contract terms clear and fair to your business? Do your payment terms state when and how your client is to pay? Do you offer discounts for paying early?
Invoicing: Have you created a consistent process for invoicing regularly? Are there particular days of the week or month that you invoice and/or check invoices for late payments? Do you have an online platform for sending invoices or reminders and receiving payments?
Follow Up: Do you have a contact that you communicate with? Do you regularly follow up on invoices that are nearly due? How far past due are you allowing your clients to go before you inquire about payment?
Accounts Receivable Clean Up: Have you considered hiring an outside vendor to review your A/R process and represent you in clean up past due accounts?
Payment Processing: How easy is it for clients to pay you? Are you set up for modern payment technologies and paying online? There are numerous cloud payment platforms that are easy to set up, reduce days sales outstanding and increases the invoice-to-cash cycle.
Stop Work: It should be clearly stated that you have the option to stop work on an account if payment is past due. How long will you go before this is enforced?
How to Fix Cash Flow & Collections Challenges
If your cash flow is already hampered by late paying clients, you may consider factoring or debt collections. Factoring is a good option if you need payment immediately and can meet the eligibility requirements for factoring some slow paying invoices. Factoring should be used if your clients are reliable, yet slow paying. If you find that some of your clients are unreliable, you haven't been able to contact them, or they are refusing to pay, debt collections is the best option to pursue.
Enterprise Recovery specializes in business to business debt collections and doesn't charge a fee unless we're able to recover the account. If needed, we can also pursue legal action if a client refuses to pay.
Hopefully you now have a better idea of your options before you write off an account or fire your client. At the very least, remember that a signed contract means you don't have to feel like your business is being taken for granted. You have a right to what's owed to you. Your business depends on it.
