Making Sure You Get Paid on Time

There are many essential ingredients for running a successful business, but maintaining a healthy cash flow is one of the most critical. When your customers don't pay you in a timely fashion, your cash flow can suffer as a result.

Therefore, mastering the art of using your invoicing software to collect accounts receivable in a timely and efficient manner could be one of your most valuable skills as a small business owner.

Send invoices promptly

If you want others to be quick with payments, show them how it is done by using your invoicing software to issue bills as soon as a job is completed or goods have been delivered.

Set clear terms

A verbal agreement for payment is not enough. For legal reasons, each client relationship should include a contract setting out terms for when they must pay and how much interest will be charged on debt past due, to be signed by you and the client. Make sure you have set out clear terms within your contract so there can be no confusion.

Check customers' credit

When you use your invoicing software to send a customer a bill, you are essentially extending credit to them. It pays to do some research ahead of time to make sure the other business is likely to be in a position to pay. This means running a credit check for any order worth a substantial amount to your company.

You can order a credit check online to confirm your client's details, including their history with providing on-time payments to other businesses and whether they have any court orders against them. You may also want to check references from other businesses.

Make payment easy

The easier you make it for your customers to pay you, the less likely you will have to chase payments down the line.

Do you offer a variety of payment options to clients? These days, many companies prefer to use credit or debit cards to pay. Others may still want to continue to pay by check. Accepting a variety of payment methods will increase the chances of on-time payment.

Provide incentives for early payment

This can be a very effective way to boost your cash flow. Tell clients that they can receive a discount if they pay within a certain timeframe. Include this information prominently on each bill you issue with your invoicing software so customers are aware of the incentive.

It is typically far more costly to pursue bills that are past due than to spend some money rewarding prompt payments.

Charge a penalty for late payment

Within the range of motivational techniques, a reward for early payment is the carrot, while a fee for paying late is the stick. You can help encourage timely payments by setting a specific fee to be imposed if a particular due date is passed—for example, 30 or 60 days from the date the invoice was issued.

If you implement this policy, make sure it is outlined in your contract with the customer, as well as displayed clearly on every invoice.

Be proactive and consistent when chasing debts

You want late-paying customers to know that when they receive an invoice, it means business. This means instituting a swift, standard process for pursuing companies that do not pay.

Don't hesitate to start following up on overdue payments. Send out reminders at set intervals, such as every 15 days after the payment is due. Experts suggest sending notices out at 30, 60, and 90 days—at minimum.

If no progress is made collecting the bill within that timeframe, you may consider turning it over to a collection agency, or taking it to small claims court yourself.

Communicate with customers

While it is important to show your strength while collecting payments, you should hesitate to jump to conclusions if a customer is tardy—particularly if it is the first time.

With some clients, you may want to make a phone call to chat about the reasons the bill is late. This opens up the opportunity to gather feedback and potentially strengthen your relationship, while simultaneously learning more about the customer's credit situation.

Use your judgment to decide whether to change the terms of their payment arrangements—but make sure you let the customer know in no uncertain terms that they could face a bill collector if the invoice remains unpaid.