Small business owners, we recognize you have a lot to do. Starting a new business or growing a small one means that there's a lot of action occurring all at once. When too much happens too quickly, there simply may not be time to stay organized. A back office necessity, that is crucial to your business, is organized accounting and bookkeeping.
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?
When you sign an agreement with a new client, the assumption is that they will hold up their end of the bargain and pay their invoices. Unfortunately, things don't always go as planned. If your client isn't paying, there are steps to take, before going to court, that could save the time and resources of litigation.
To increase your chances of getting paid, follow the steps below.
Forward this blog to your CFO or Controller…and ask for a response to the following questions:
The definition of working capital, in accounting terms, is the difference between your business' current assets and current liabilities. Investors and business analysts will use this as a balance sheet measurement of overall liquidity or financial health of the company. When an organization has enough working capital, they are able to easily pay short term expenses and liabilities and maintain daily operations.
When your business' cash flow is tied up in accounts receivable, what are your options? If you have enough working capital, you may be able to wait for 30 - 90 days for payments to come in. If not, you may need to get your hands on some of that capital immediately. Depending on timing, accounts receivable factoring vs. accounts receivable collections may be better.
When should your business use factoring? When is a collection agency the best option?
Organizations depend on their clients following through with promised payments. When recurring revenue is compromised, other areas of the business may suffer. Failed or rejected payments may be regarded in the same line as bad checks. While the declined payments may not be intentional, your business may need help recovering these payments.
Becoming a freelancer means leaving a traditional job in the hopes of feeling more respected, empowered, and excited to start each day. It also means taking on the task of running a business, from sales and marketing to accounting and paying taxes. Finances may be different every month, with a large payouts one month and then smaller or non-existent payments at other times. Budgeting is very important as well as getting paid on time. Unfortunately, most freelancers experience late paying clients or those who don't pay at all.
When selling anything that requires ongoing payments, there could be a challenges in collecting those payments. Businesses selling software-as-a-service (SaaS) receive a monthly or annual fee from clients who have purchased a subscription. The client may claim that they no longer use the service or a variety of reasons for nonpayment. Anytime a client is contractually obligated to pay for a product or service, whether they use it or not, the account can be sent to collections.
If your business is selling software or any other subscription model, you do have recourse for non payer churn.
When online retailer Amazon recently purchased the grocer Whole Foods, CEO John Mackey compared their relationship to dating and falling in love. Destiny reigns when one business has what the other business needs and the sales process feels "meant to be". Inside of a business relationship, however, there are situations and discussions that could be challenging but must be addressed.
Instead of avoiding tough conversations with your business customers, follow these rules.
