Are Slow-Paying Clients Killing Your Cash Flow?

Posted by Ryan Howard on Apr 22, 2022 3:47:48 PM

Are Slow-Paying Clients Killing Your Cash FlowBefore we dive in, do you ever run cash flow reports on your business? If your organization is earning revenue, it does not necessarily mean that you have that much cash in the bank. A simple statement of cash flow report is available through any accounting software and will present a clear picture of your inflows and outflows, including accounts receivable. Quite simply, if your clients aren't paying on time, you may have less cash than you think.

Are slow paying clients killing your cash flow?


Why Clients Don't Pay On Time

If you've realized that your late receivables are what's killing your cash flow, it's easy to become frustrated. There are many valid reasons your clients may be paying late, and many of them are solvable:

  • Lagging payment terms - If you're noticing that the average time to collect on invoices is longer than your payment terms, it makes sense to adjust your payment terms. This will adjust your payment expectations.

  • Unclear invoices - If your prices don't match your client's expectations of what was sold to them, they may have questions. They may also be unsure of whom to pay and when.  Make sure your invoices include everything required to pay and work with sales to resolve any pricing disputes.

  • Misplaced invoices or AP changes - Some invoices are misplaced simply because of personnel changes in your client's accounts payable department. Perhaps the original contact is out of the office, or the invoice was sent to the wrong person. Communication with your contact will help resolve this issue or prevent it from occurring.

  • Financial hardships - Your client may be unable to pay on time because of their own finances. They may need their payment terms adjusted. You may need to negotiate a payment plan. It may also be advisable to run credit checks on new clients before issuing credit. Our sister company, VeriFirst, can help.

Business Credit Checks with VeriFirstThe Importance of Following Up

Because of these potentially solvable reasons for late-paying clients, it's important to follow up. Some examples of following up include:

  • Working with your sales team to ensure the invoice matches what was promised in the sale.

  • Regularly running aging reports to determine which clients are not paying on time. 

  • Revisiting your credit or accounts receivable policies to adjust your business policies.

  • Communicating often with your clients' accounts payable departments, especially during holidays, summer vacations, mergers and acquisitions, or any other reasons your contact would be out of office.

  • Reminding your clients that their invoices are about to be due or are past due.

When you check in on the process of bringing on a new client and why they're not paying, you increase the likelihood of a more dependable cash flow.  Communication really is the key to understanding what's happening so you don't feel so defeated by slow-paying clients. Use these tips to revive your finances and empower your growing business.Send These Reminder Notices

Topics: Best Practices, Commercial Debt Collection