If you’re a provider of products or services to other small/medium sized businesses, you probably rely on an invoice process to bring in revenue from your customers. When this process doesn’t run smoothly, your company isn’t as productive or profitable as it could be. Even worse, it could lead to cashflow problems or other financial difficulties. If you’re having invoicing challenges, we have put together 6 tips which may help get you back on track.
1
To ensure that your invoices are processed and paid as quickly as possible, you need to establish a clear procedure for dealing with them. This procedure should include a timeline for the creation of the invoice, sending the invoice to the customer, receipt of payment and collections activity. Make sure all employees working with invoices are aware of this procedure and understand their responsibilities.
2
Customers are more likely to pay invoices in a timely manner if they understand when their payment is due and what will happen if they don’t pay. Include information about the invoice process on the invoice itself, on your website and on any relevant contracts. Make sure you establish a deadline for payment and provide a clear explanation of the steps you will take to collect if the customer does not pay on time.
3
In some cases, customers don’t pay their invoices simply because they forgot about them. Sending one or two reminders as the due date approaches can improve payment rates. You can send reminders to customers in the mail, via email or via text, depending on the situation.
4
Getting customers to pay their bills as quickly as possible gives your small business more operating revenue, and it improves the efficiency of your invoice process. You may be able to encourage early payment by offering an incentive to customers who pay their bills within a certain time frame, such as a discount or coupon. You can also encourage prompt payment by adding a fee to invoices that are not paid before the due date.
5
When customers don’t pay their bills by the due date, you need to take immediate action to collect. Send the customer a late notice and consider making a phone call. If the customer continues to avoid payment, you can take other steps, such as involving a collection agency or taking it to court. However, these more aggressive collection actions should be a last resort.
6
To prevent invoices from falling through the cracks, keep records of all communications with customers. Keeping careful records will also be helpful if you need to pursue any type of collection action against one of your customers.
7
You can only achieve so much by cutting costs. At the end of the day, a good business owner makes money and builds a healthy cash reserve. If you’re having a cash flow problem, the root cause could be that you don’t have enough sales coming in (cash inflow). The way you earned your original customers may not be the way to bring in your future customers. Explore new avenues for building brand awareness in your community.
For more small business accounting tips or to discuss our other services, please contact your nearest Padgett office today.
