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Invoicing clients and customers and then waiting forever to get paid is a problem most small-business owners have experienced. Untimely payments can cause serious cash-flow problems. And cash-flow problems, according to a recent study, are the cause of 29 percent of small-business failures.
To help your company manage its accounts receivable with the least amount of angst, here are five steps to take now to make sure your small business gets paid on time.
1. Set the terms
Denise O’Berry, a Tampa-based small business consultant and author of Small Business Cash Flow: Strategies for Making Your Business a Financial Success, says the key to getting paid on time begins with setting boundaries for customers and clients. “So many small-business owners make the mistake of sending an invoice that doesn’t have a due date or any other payment terms,” she says. Her advice: Don’t wait until it’s time to invoice to address payment terms. “All of this should be spelled out in your contract or work agreement,” she adds. And it doesn’t have to be 30 days. “There’s nothing magical about this timeframe,” O’Berry says. “That’s the beauty of being the boss. You can set whatever payment terms work for you.”
2. Ask for a portion of your fee up front
Being a small-business owner doesn’t mean you need to finance your customers’ orders. “Small service businesses often do the work and then bill the customer days or even weeks afterward,” says O’Berry. “I advise people against that. You’re not their bank.” It’s not unreasonable, she says, to ask for anywhere from 30 to 50 percent of your total fee up front before the work begins. And if the customer balks? “You always have the option of accepting a smaller percentage up front,” she says. “But I would start by explaining that this is how you work with all your customers and that you’ve never had an issue.”
3. Get to know the people who pay you
The man or woman you shake hands with when you land your contract or order is most likely not the person who’s going to be cutting your check. That’s why it’s so important to get the name, phone number, and email address for your customer’s accounting staff. “The best thing to do to help get a timely payment is to know the accounts payable contact at your client’s company,” says John McAdam, author of The One-Hour Business Plan and a small-business consultant. “Then I notify them one week before the invoice is due that it is in fact due.”
4. Skip the paper
With so many quality online-payment systems - from QuickBooks to any of the big national banks’ online bill-paying services - there’s little reason to use paper invoices. “It slows everything down,” O’Berry says. If your terms are to be paid within 30 days, McAdam recommends making a courtesy call right before that time to double check that your information - bank account number, business name, and address - is correct and in your customer’s computer system. “You would not believe how effective that is,” he says. “It can mean the difference between your check going out the next day and your invoice just sitting in someone’s in-box.”
5. Know when to walk away
As obvious as it may sound, O’Berry often finds herself advising clients to stop doing business with customers that simply don’t pay. “When a customer doesn’t pay you, there is no business,” she says. “Cut them loose and begin to arrange payment plans to collect what’s due to you. You’ll feel better and it frees you up to work with clients that will pay in a timely way.”
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