When customers do not pay on time, it can take a big chunk out of a small business’ working capital. This added financial strain can put a small business in a difficult situation. It is well known that small business success is closely associated with the ability to maintain enough working capitol to pay for operation and growth. Therefore, being able to get the money tied up in outstanding customer receivables is essential for the business to thrive.
The following are a few tips on how you can get the money that your customers owe you:
- Streamline your billing system: If you want to maximize the money you get from outstanding customer receivables, then the first step to is to make sure that your billing system is running efficiently. You need to have a clear and accurate accounting of what is happening with your customer receivables. There are several accounting software programs on the market, such as QuickBooks, that can help you keep track of who has paid and automatically alert you when bills are overdue.
It is also good business practice to clearly record when you send out any written requests for payment or make any phone calls.
- Create a plan of action: You should have a set strategy for handling any overdue bills. This strategy will include when written requests for payment will be sent out, when phone calls will be made, and at what point the debt will be handed over to a collection agency.
- Offer incentives for early payment: Alternatively, you can try to make paying on time attractive to customers by offering discounts on the amount owed. Some customers will find that it is worth it to pay on time in order to take advantage of the price break.
- Reevaluate terms of payment: If you see that most of your customers are consistently paying their bills late, then you may want to reevaluate and adjust your terms of payment. Perhaps you can extend the payment period, but require an initial down payment at purchase.
- Factor accounts receivables: If your business is suffering from a cash shortage due to the amount of outstanding customer receivables it is sitting on, then you may want to consider factoring them. With account receivables factoring, a business sells its receivables at a discount to a factor company. The factor company, in turn, provides the business with instant payment.
Another benefit of factoring your accounts receivables is that once the factor company purchases the invoices, it becomes responsible for collecting the outstanding debt.
- Send bills to a collection agency: When a debt is overdue past a certain period then the best option may be to hand it over to a collection agency. Just keep in mind that the longer you wait, the less likely it will be for you to receive your money.