Making sure you’re paid on time
might be particularly challenging at the end-of-year period because it’s a
hectic time of year for everyone.
If you don’t follow up with a
client right away or invoice too late, an invoice that should have been paid in
the middle of December may not do so until February. In fact, data from Xero’s
study shows that January is the slowest month for invoice payments.
That may result in problems with
cash flow, which might be extremely problematic for all businesses.
Here are some suggestions for
dealing with late invoice payments throughout the end-of-year period to prevent
the silly season from becoming overly stressful.
Start Straight Away
Plan ahead, first and foremost.
The ideal time to send bills to
clients is at the end of the first week in December, giving them two full weeks
to pay before everyone departs for their summer breaks.
However, invoice even earlier if
possible. According to Chris Lee from Funding Finance, “Don’t wait until
December to start following up money from clients.” “Put your best
foot forward!”
‘Oh no, we don’t agree with that
invoice,’ the client can come back and say if you wait until, say, December
15th. After some back and forth, you won’t receive payment until January.
Having a three-month cash flow
buffer will also help all my business owners get through the dreadful December,
January, and early February time. Businesses must also plan their financial
flow for this time frame. Business owners must understand their financials.
Many firms just base their profit on the amount in their bank account, but that
is untrue. Businesses must also be aware of any liabilities, taxes, and
expenses that will be deducted from that account in the coming months.
Promote prompt payment
Additionally, companies must
build effective communication channels. Make sure the invoice specifies your
payment conditions in detail. Implementing harsher payment terms, such as
lowering the payment time from 30 days to 14 days, is one area to consider
modifying.
Pursue unpaid debts
It helps to have an automatic
system in place that sends a payment reminder alert once a client payment
approaches the overdue stage.
If that doesn’t work and you’re
afraid of alienating your client by sending a legal letter, consider hiring an
accounts receivable specialist or your accountant to follow up on the payment
on your behalf.
Chasing after overdue payments
can be uncomfortable, and if you’re making your customers pay, it can be
difficult to retain a relationship. Outsourcing your accounts receivable
operation to a third party is an effective tactic.
Last minute options
Nobody wants to send a client an
email to follow up on an overdue invoice only to receive an automated reply
from the client’s debtor boasting that they are in Aspen skiing.
If that is the case, you still
have a few options available to you. You may be able to cut costs and overhead
in your company, which will help you weather difficult times. Depending on the
state of your business, you might be able to apply for a line of credit or a
lump-sum short-term business loan.
To ensure the long-term success
of your business, it’s crucial to choose the appropriate financing conditions
that fit the duration and the serviceability of your company.
Make preparations now for the following year
Finally, here are five
suggestions you may start using in the new year to help your business avoid
experiencing issues with late invoice payments over the upcoming summer
vacations.
1. Accounting software: You can
use accounting software to set up recurring direct debit payments that are
taken out of the customer’s bank account each month or annually.
2. Conduct background checks and
credit checks on prospective clients to ensure that they are trustworthy
individuals who will make payments on time.
3. Payment of an upfront deposit:
To cover the costs associated with starting the project’s first stage, several
sectors will require an upfront payment of 20 to 50 percent of the total task.
4. Retainer: To simplify billing,
put clients on a regular monthly or quarterly retainer if you have ongoing
relations with them and know they will spend $20,000 every year.
5. Prepayment discounts: Provide
incentives to customers to encourage early payment of invoices. For the sake of
cash flow, an appropriate discount can be structured.
Talk to me if you don’t want to
spend the holidays worrying about overdue expenses. During the slowdown at the
end of the year, we can explore cash flow options during the end of year
slowdown or any other time of year.