Managing cash flow is so important in business, especially if you are a startup with very limited cash reserves. It’s so important that you keep your spending under control and eliminate waste where you can, so you do not run into financial issues. However, you can still be hit with cash flow issues even if you are careful with your money due to factors that are largely outside of your control.
Unpaid invoices are a big problem for businesses because you are spending money and not seeing any return on that investment as your customers are not paying up on time. It only takes a few late invoices to land you in some serious financial trouble, so you need to get this issue under control from the start. If you have had issues with unpaid or late invoices in the past and it is putting your business at risk, these are some of the best ways to deal with it.
Make Your Invoices Clear
Unclear invoices often lead to missed or late payments, so you should take a look at yours and make changes if necessary. When you write an invoice, it is important that you give a clear breakdown of exactly what you are billing so the client can see how you arrived at the final figure. If your invoices are very vague, customers are more likely to come back and query certain fees, which slows down payment. If there are disputes, they may use this as an excuse to try to get out of the payment entirely.
You also need to be very clear about the payment date for the invoice. A lot of people make the mistake of assuming that clients will pay up promptly, but that is not always the case. If there is no clear payment date on the invoice, people will wait until you start chasing them for the money and you don’t really have a leg to stand on because you never specified a time scale for the invoice. As long as you have a date clearly stated on the invoice, you can start chasing them up for the money as soon as that date has passed.
Keep Negotiations In Writing
When you are negotiating services with a client, it is often best to do it in person or over the phone. However, you also need to keep a record of these negotiations in writing because it will save you some problems further down the line. If you have a client that doesn’t want to pay, they may turn around and say that the amount on the invoice is far more than what was agreed and they are not going to pay. If there is no evidence of the price that was discussed, you don’t really have a leg to stand on.
You can get around this if you send emails to clarify all of the prices that were agreed upon and create official quotes for all clients before you agree to anything. That way, you have some evidence to fall back on if they try to avoid paying the invoice.
Encourage Direct Debits
Direct debits are an incredibly effective way to improve your cash flow and make sure that you get paid on time, every time. If you offer a subscription service of some kind or you have clients that you do regular work for, you should encourage them to set up a direct debit. If you are going to use this payment form, you should get a price for Direct Debit solutions and have a professional company handle it for you so you don’t need to manage them. As long as they are handled properly, the direct debits will be paid on time every month and you don’t need to worry about cash flow issues or chasing people up for money.
If your customers are reluctant to set up a direct debit, you can entice them by offering them a small discount or some added extras of some kind. You should also highlight the benefit to them because they don’t need to worry about manually paying all of their invoices, so direct debits are a win for both of you.
Understand Your Customers
In some cases, customers don’t want to pay their invoices because they are trying to take advantage of you and they want to save some money. However, some customers may not be paying because they are struggling with their own financial issues. If this is the case, you still need to remember that you are running a business and you need to get paid, but you should also try to see things from their point of view. Speak with the customer and see if you can work out a payment plan with them. You will still get your money and they can manage their finances more effectively. However, don’t make a habit of doing this and make it clear to the customer that you cannot provide services if they cannot afford to pay for them.
Ditch The Bad Customers
Some customers just don’t want to pay, it’s that simple. They will try every trick under the sun to get out of paying that invoice and if you are too lenient with them, they will start to take advantage. If the invoice is late, make sure that you keep calling them up and chasing them for payment. If you are still not getting anywhere, you may need to take legal action against them, but they will usually pay up if this is threatened. Once the payment has been made, you need to decide how to move forward.
So many new business owners struggle to deal with tricky customers because they worry about losing business. They think that if they take a hard line against people that don’t pay invoices, they will lose that work and profits will take a hit. But you have to remember that if you let it slide once, it will continue to happen in the future and you will have a lot of financial issues as a result. It is much better to take a hard stance against unpaid invoices from the start and drop those customers.
Dealing with unpaid invoices can be tough but if you follow these simple rules, you can avoid any serious cash flow problems and your business will thrive.