Two Things You Can Do to Get Paid On Time
One of the most frustrating tasks for entrepreneurs and business owners in general is dealing with slow paying clients. They drain your organization of time and morale. But more importantly, they drain your most important resource - cash flow. They get to use your products or services, for free, until they pay. However, you still need to come up with the funds to operate your business, while you wait for them to pay. Basically, you slow paying clients are taking an interest free loan from you.
Fortunately, there are two things you can do to improve your chances that your clients pay on time - every time. These two simple things can have a great impact on your business and your cash flow.
Give credit, only where credit is due
The most important rule is that you should only give term credit (payment terms) to clients that deserve it. Offering credit to companies that don't have good credit is a recipe for disaster. Sure, you may think that you booked the sale. But in our view, the sale is not completed until the client pays. And if they don't pay, it's not a sale. It's a gift.
This simplest way to improve your chances of getting paid promptly is to give payment terms with clients that have a record of paying their vendors promptly - and avoid those that don't. It's as simple as that. And the easiest way to accomplish this is to screen your client's credit before selling them your products. You can get commercial credit reports from the major credit bureaus. Three well known services are Experian, Dun & Bradstreet and Ansonia Credit. Each bureau offers different report types with different levels of detail. The most important information they can provide is vendor payment trends - which allows you to determine if your clients have a track record of being good payers. Here is more information on how to determine the creditworthiness of a client.
A large number of invoices are paid late because of disputes. Basically, there is a misunderstanding on the part of you and your client regarding some aspect of your product or service. Disputes can drag on for a long time and wreak havoc on your cash flow and on your client relationships. One simple way to avoid these problems is to have a well written contract that stipulates the details of the sale, and use it in combination with an acceptance service letter. When written by a competent attorney and used correctly, these documents can help you avoid problems.
The acceptance service letter is a document that is signed by the client after your product or service has been delivered. In it, they acknowledge that your services met their criteria. Obviously, if they refuse to sign the document it will indicate a problem. But at least, you can fix it on the spot and avoid a drawn out cash flow problem.
But, my clients pay on time. I just can't afford to wait 30 days
One of the problems of doing business with commercial and government clients is that they will often demand payment terms as a condition of doing business with them. If you don't have the financial resources to offer terms, you could end up with cash flow problems. One easy way to avoid this is to build a cash reserve that can allow you to run your company while waiting for payments. However, building a reserve is difficult for many companies and nearly impossible for startups.
One option is finance your receivables. Factoring your invoices enables you to solve this problem by getting an advance on your slow paying receivables from credit worthy clients. This provides you with the funds to run your business, while the finance company waits for your client to pay on their usual terms.
Most companies are a good fit for this solution. The biggest requirement is that your invoices must be to solid clients, and they must be free of liens an encumbrances. This makes invoice financing an ideal alternative for growing companies that have working capital issues due to slow paying clients.
1.5% factoring rates for qualified clients. Advances as high as 85%.
Questions? Call (866) 730 1922. USA and Canada
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