If you run a B2B business, you should be all too familiar with the perennial problem of dealing with clients who clear invoices several days, or even weeks, after the due date. Regardless of the industry you serve or the scale of your business, you’re bound to encounter slow-paying clients who are great admirers of your work but won’t pay up until after several reminders have been sent.
For small and medium-sized organizations that work with limited cash, payment delays can drastically upset their cash flow and as a result cause undesired delays in paying salaries, utility bills and vendors.
Here are 3 simple tips to get around this problem without damaging your relationship with your clients.
Establish payment terms that are right for your business
As a B2B seller, you may not always be able to dictate the payment terms that are more favorable for you than they are for your client. This is particularly true when you’re just starting out. However, based on the kind of business you have and the cash flow your organization needs to run smoothly, propose payment terms that are favorable for both you and the client.
A clever solution is to understand the client’s payment system and take into account the inevitable delay at their end in processing invoices. So when you’re defining payment terms, factor in the approximate time a client is likely to take to pay your invoice. For instance, if you expect an average delay of one week, give the client a credit period of three weeks so that you’ll have your payment within a month.
Send the invoice as soon as the client receives the goods or services
Some companies delay sending invoices to B2B clients, which not only disrupts the payment cycle but also gives their client the impression that there is really no rush to clear the invoice. If you want your clients to respect your payment terms, direct your accounts team to invoice the client as soon as a service is complete or reaches a predetermined milestone.
Swift billing coupled with firm payment terms will help you get your money faster and will eventually accustom your client’s accounting division to process your invoices on time.
Outsource to an invoice factoring service
A viable and increasingly popular solution for small business owners and startups struggling with delayed payments, an invoice factoring company will buy your accounts receivables and pay you up to 90 percent of the invoice amount within 24 hours. This saves you the stress of surviving through 60 or 90 days’ payment cycles and provides you working capital to run your business uninterrupted. The factoring agency then presents the unpaid invoice to your client and follows up until it’s paid in full.
Factoring companies charge a small fee for this service, which is deducted from the sum received from your client. Invoice factoring, also known as invoice financing, is a great way to streamline your cash flow and limit dependency on your clients’ payment process.