There are numerous red flags that could signal a late payment from your clients. Red flags, however, could be easily ignored. Green flags, on the other hand, provide a sense of safety and trust. The more green flags, the more you know that your business is working with the right clients - those who respect your time and value your partnership - and that you're doing A/R right.
Here are five green flags that reveal your client will pay on time.
Proper Handoff from Sales
If the sales department made the deal, the handoff to accounts receivable is essential. This means that A/R and the credit department were involved in reviewing the client's credit application and/or reviewing their payment history prior to securing their business. If the credit department isn't involved, then at the very least, sales and accounts receivable are working together to ensure the client is aware of what they owe and when.
Consistent Communication
When your client contact or accounts payable department is readily available on the phone or via email, you can breathe a sigh of relief. Consistent communication is a good sign that you'll be able to access someone if you have any questions or concerns or need to follow up on an invoice. It also means that your client is probably reliable and will keep their promise to pay on time.
Proper Invoicing
Clients will usually pay on time if they know a few things:
- A description of goods or services provided
- How much to pay
- When to pay
- Who to pay
- How to pay
If your invoices include all of this information and anything else required - contract information, account # - then your client will not have much of an excuse to not pay on time.
Payment History
This seems obvious but shouldn't be overlooked. When your client has a good payment history, with you or others, they're likely to pay your business on time. If they have been paying you on time, then it's no sweat that they'll keep coming through for your business. Otherwise, a business credit check could also reveal a solid payment history for other accounts they owe and help you to sleep better at night.
Easy Ways to Pay
When you provide easy ways for your client to pay you, such as direct deposit, ACH or credit card, then they're likely to pay on time. Even better is when the A/P department communicates with you or your A/R department that payment has been processed and when you can expect it in your bank account. If they're willing to set up these options for easy payment to your business, that's a big green flag that they trust you and want to keep paying you.
Green flags don't mean that your client won't pay late at some point. It does mean that they're less likely to pay late. Many of these things can be set up by your accounts receivable department to protect your interests. In other words, when you do the work to properly invoice and communicate, your cash flow will thank you.