Small businesses are particularly prone to problems stemming from late payments from customers because they often don't have consistent policies in place about collecting on unpaid receivables nor a dedicated credit manager or collections team. Here's a few prudent tips on collecting outstanding invoices / accounts receivables:
Get Paid Faster
- New mobile payment solutions and online invoicing tools can help companies get paid faster, but there are also some tried-and-true collection tactics that owners can use to turn unpaid invoices into cash.
- Get paid upfront by credit card. This will result in a slight reduction in your net revenue, since you have to pay a credit card transaction fee, but it may be better to pay the fee than have your money sitting in your customer’s bank account.
- Use bright-colored paper for your invoices. This makes it easier for invoices to be noticed by your customers.
- Clarify payment terms. Be sure to state in very clear terms on invoices when a payment is due.
- Be flexible — within limits. If your payment cycle is 30 days but a great customer prefers 45-day terms, it may make sense to make an exception. However, consider charging an added fee for extended payment terms.
- Provide incentives. Offer a free service contract or extended product guarantee in exchange for timely payments.
Although you may never have heard of this type of small business financing, it can be a valuable solution for your small business. As the name implies, invoice financing allows you to obtain an advance against the value of your business’s unpaid invoices. Here’s a closer look at how it works and what situations it’s useful for.
Where does small business invoice financing add value?
There are many situations where invoice financing can help. Invoice financing works best for small businesses that don’t get paid right away, but instead invoice their customers and wait to receive payment in 30, 60 or 90 days (or even later).
Sometimes, waiting for those customers to pay you can really put a crimp in your cash flow. After-all, if more money is flowing out than flowing in, you are setting yourself up for a cash crunch; which is why many small businesses wind up out of business. Theoretically, your business is doing well because you have lots of outstanding invoices, but in reality, you don’t have the cash on hand to handle immediate expenses such as payroll and inventory. This is where invoice financing comes in handy.
Invoice financing can be useful for very small businesses, and even freelancers from which an unpaid invoice can make the difference between paying that month’s mortgage or not. However, it’s also valuable for businesses with big clients that frequently are slow to pay, such as government agencies or corporations that may have a lot of red tape involved in the payment process.
Invoice financing works best as a short-term financing option that can provide the working capital you need to get over the hump until you get paid. Because you get your money quickly, invoice financing is an ideal solution when an unexpected cash crunch hits and you can’t wait for a traditional bank loan. It’s also a great solution when you don’t need a small business loan, just a little bit of extra cash.
Accounts Receivable Financing (A/R financing)
Sometimes known as a ledgered line of credit or invoice financing, is a great solution for businesses that need more funding that is not available from traditional lenders. Many businesses need additional cash flow to support seasonal demands, growth, business opportunities, or solve a short-term cash need. Accounts receivable financing provides your business with flexible and immediate cash that will give your business the opportunity to grow, restructure, take advantage of supplier discounts, hire additional employees, or even to fund payroll. With our accounts receivable financing options, you can access cash without having to give up equity in your business, and it is less restrictive and expensive than equity financing. A/R financing can increase or decrease based on your current businesses size and needs, allows you to gain administrative support to manage your receivables without additional staff, and gives you access to cash when you request it (based on your eligible accounts receivable).
This type of asset-based financing allows businesses to get instant access to working capital without jumping through the hoops or dealing with the lengthy waits associated with getting a bank loan. When a business leverages its accounts receivables to boost its cash flow, it also doesn't have to worry about repayment schedules, and instead of focusing on trying to collect bills, it can focus attention on other core aspects of its business.
Cash flow is the lifeblood of your business. Just like caring for your health, a bit of preventative maintenance and careful ongoing attention can keep your business’s revenues healthy and strong. Have questions about managing cash flow or cash flow financing? Call (855) 998-LVRG or click below to get started!