With all the advancements in technology, including Artifical Intelligence in banking, you’d think there’d be solutions available for managing how businesses get paid on time.
The challenge with the existing accounts payable systems is they can push out reminders, but that’s as far as they can go, they can not make the customer pay. You’ve all heard of the phrase which dates back to 1175AD You can lead a horse to water, but you can not make it drink, so for now, the onus is on the business to develop the right practices when it comes to debt collection.
Failure to manage debtors has dire consequences for a company, with the worst outcome being insolvency and the end of the business. In this blog article, we cover some of the outcomes every business owner must avoid to remain liquid and grow. Plus we have valuable tips for dealing with clients who won’t pay.
One of the most essential tips to ensuring that you have your debtors paying you on time is to get as organised as possible – quickly. Your accounts payable must have accurate invoices, accurate account information and unambiguous payment terms to ensure that those who are invoiced understand their responsibilities correctly. This is a system that needs your immediate attention. Review your current accounts payable process and get to work on updating client information, payment terms and incentives for quick payment.
Shorten your payment terms. Change 30 days to 15 days or shorter and the past due date arrives sooner. A Xero study of debtor payment terms confirmed the shorter the term, the faster the payment. Overdue invoices paid within 7 days of the past due date. So if your new payment term is 15 days expect most payments within three weeks.
Make it easier for the client to pay with investment for quick payment. Discounts or earning points that can be redeemed against the next purchase for speedy payment will work with most repeat customers.
A trick to keeping payments coming is in your client relationships. You need strong links with your clients so that they feel compelled to pay on time, preserving your relationship and continuing a mutual trust in your efforts working together.
When either you or your client rescind on a contractual agreement, it damages the relationship. So, it’s time well spent, nurturing the liaison with customer contacts, and respectful practice will be followed, with your business being paid on time – every time.
For smaller enterprises, and startups the regular contact with your customers can be twofold, and include a sales pitch. This is sure to motivate you to make the call or send the email every time.
Lastly, a big hint for ensuring that your business is paid on time lies in how you invoice. Today, most accounting software is available online and with functionality to set up automated invoicing, send out payment reminders and provide discounts. How you accept payments will also encourage a fast turnaround.
Can your invoices be paid in a click? Once again, this tip works when your business has a steadfast accounts payable process, and the invoices are created and delivered to your customers soon after their purchase.
An online accounts payable system is also beneficial for reconciliation and reporting. Information is power, and all businesses need to regularly review reports including aged payables, cash summary, movements in equity, profit and loss.
Why Is It Important To Be Paid On Time?
It’s important to remember that late or non-payments of invoices are damaging to your business. Not only have you provided your clients with a service that you are carving time out to give, you know that the lifeblood of your business is in the cash flow. Without one, your business is not going to exist any longer.
Cash flow management must be a priority for your business if you want to remain financially healthy, and active, so let’s explore why you should be paid on time:
- Firstly, without money, your business is not legally able to operate. You need to have cash in the bank to call yourself a business in the first place, as that cash will be creating a service and offering it to others.
- Next, cash flow is vital, as we’ve mentioned. Cutting back on late payments from others can make your cash flow stay healthy.
- When one client doesn’t pay, other staff, suppliers and those YOU have to pay will suffer. You’re relying on payments so that other people can be paid, and you need that money paid on time.
Running a business is not just about focusing on sales, you need to get paid, and if you cannot get your clients to pay you on time even with our tips you have two options: stop activity with that client, or call in the debt collectors.