Late payments and invoices are a common problem for businesses of any size. One study found that 3.5% payments are made at least 90 days late. That means if you have 30 clients, at least one of them is likely more than three months behind.
Meanwhile, these tardy customers have an outsized impact on small businesses. If a customer skips out on a cell phone bill, Verizon executives don’t start worrying about payroll. But if just one of your staffing clients falls behind, you could be in for some sleepless nights.
The Downside of Mismanaging Collections
First, you need to realize the importance of a well-structured system for managing late payments. This understanding will give you the incentive you need to put the right policies in place. Without a proper framework for handling these situations, your business could suffer.
Here are some of the downsides to mismanaging your collections process:
Running after delinquent clients takes time and effort. Resources you could use to find new customers or improve your operations are now getting redirected towards collecting revenue you’ve theoretically already booked. It’s an inefficiency your organization can’t afford.
Less Eventual Revenue
Late payments mean revenue that’s in jeopardy. Some percentage of your delinquent clients will never pay what they owe. At a certain point, you’ll either have to settle for a lower number or give up on the collection entirely. In the end, that means less overall revenue for you.
Enough late payments can put your entire organization at risk. You still have deadlines to meet. Payroll and other expenses come due on a regular schedule.
Without the predictable inflow of cash, you won’t have the funds you need to pay your bills. Let things get bad enough and you’ll start falling behind as well. In the worst-case scenario, this could lead to an all-out cash crunch.
How to Manage Late Payments from Customers
Now you know the risks involved with letting customers fall behind on invoices. But what can you do about it? Here are a few tips that will allow you to manage late payments from customers:
Establish Your Terms: Don’t make policy on the fly. Create systems for dealing with late customers before it becomes a problem.
Communicate Your Policies: Let customers know upfront what you expect. Put your policies in writing and make it clear from the outset that you’re serious about having invoices paid on time.
Send Invoices as Early as Possible: If you want to get your cash quickly, give your customers as much time as possible.
Create Incentives and Penalties: Use late fees to deter slow payment. At the same time, offer discounts for upfront or early remittance.
Stick to Your Policies: Don’t make exceptions. Hold all your customers to the same standards.
Talk to Late Customers: Stay in communication with late customers. This will let you break through bottlenecks. It will also let them know that you will stick with your collection effort.
Know Your Limits: At a certain point, you can’t keep serving delinquent clients. Be ready to stop service if the conditions demand extreme action.
Invoice Factoring: Get paid on the revenue you’re already owed. Turn to alternative funding options to grab cash from your open invoices.
Interested in How Invoice Factoring Can Help You?
A relationship with a financing firm allows you to avoid the downsides that come with late payments. Frontline Funding can help you get the most out of your staffing firm.
Contact Frontline Funding today to discover your options.