When you are running a business, you expect to get paid on time by your customers and clients. There’s a professional expectation when you send out your invoice that it will get paid in line with your payment terms. But in reality the situation is not quite so ideal.
It’s not uncommon to end up with a long list of pending payments. And when you don’t get paid on time, this has a negative impact on the future health of your business. Regardless of the size of your business, pending payments aren’t just an inconvenience. You need to have strategies in place so that invoicing won’t threaten the very existence of your business.
We as a business consultant are aware of the stressful problems relating to late cash collection and pending payments and the potential damage this can have to your business.
Once a pending payment remains unpaid, it sets off a chain of events that can become a viscous cycle if left unchecked. Hence understanding the various impacts of late payment puts you in a better position to tackle them.
Let’s see the potential damage that pending payments can do to your business:
Lost Profits –
When you don’t get paid on time, this affects your cash flow. Money that you expected to receive in your bank account fails to reflect and that has a negative impact on your potential profits – profits that you could be investing back into the business if the pending payments and invoices had been paid.
Waste of Time –
Following up clients and debtors takes up a lot of your precious time. You have to take time away from the business to phone or email finance departments – and that means you’re not being truly productive. The larger the number of outstanding invoices, the longer you’ll spend chasing payment. And so the cycle continues.
Fear and Strain –
If your pending payments situation is gets out of control, you live with the fear of the existence of the business. Cash flow is the lifeblood of any business, and pending payments and invoices are stopping that flow of cash. Hence you need to act fast to keep your business alive and kicking. Insufficient cash flow can affect other business elements such as employee pay cuts, marketing growth, inventory etc.
Below are some tips to address debts and pending payments –
Credit Control –
By having a valid credit strategy, it will be possible to understand the current financial situation which the management will analyze and find better and innovative solutions to the presented problem. A good credit strategy will help the company keeping a record of all the late payments and will ensure that the respective clients make the payments.
Get Payment up Front –
Wherever possible, you should try to get paid up front. Once your customer has accepted your quote, and a contract has been signed, send out the invoice. The sooner that fee hits your account, the healthier your cash flow will look. And that cash can then be put to good use in the business, or as part of your growth plan.
Provide Discounts and Charge a Penalty –
If you offer a discount for early payments, customers and clients are encouraged to pay ahead of the due date. It’s not uncommon to offer a one percent or two percent discount on the total invoice amount if invoice is paid in full within 10 days. This technique might motivate clients to make payments prior to the due date. This will help push clients to pay faster, it will also help you cover the cost of any financing issues that you personally have.
Due Diligence to Avoid Pending Payments –
If you wish to prevent pending payments in the first place, make sure you carry out due diligence or research about the new clients to make sure they have the capacity to make timely payments. It is important to make sure that a contract is signed, payment terms are discussed and agreed to in writing at the start of the project.
