Small business getting paid on time on your accounts receivable
What’s more important than closing a big sale? Getting paid! Sometimes this is harder than winning the deal. Small businesses lose over $15 billion a year to unpaid sales. Here’s how to avoid adding to those losses.
Do your research before you make an offer
Before closing a sale, determine how willing and able the client is to pay you on time. Structure your payments accordingly; the riskier the client the more you need to collect upfront.
- Ask other vendors about their experiences collecting payments from this business
- Find out if the client has a habit of requesting changes to payment terms after the deal is done
- Research the company’s current financial condition, especially if they have liens, active lawsuits or bankruptcy filings
- Look for any recent bad news like declining sales, location closures, loan denials or other troubling signs
Invoice immediately and correctly to get paid on time
Invoicing isn’t the most exciting part of running your business but getting it right means getting paid. Never delay sending out an invoice. Conditions within a client company can change dramatically in the span of a few days. If the company requires a Purchase Order number on invoices don’t start work until you have the P.O in hand.
Many large companies will deny payments on invoices that are incomplete or improperly formatted. When closing the sale ask for invoicing policies and procedures and follow them exactly.
Many times the difference between getting paid and getting left out in the cold for months comes down to personal relationships. Make friends with the people in the client’s finance department. An alliance there can mean getting a quick, friendly call to resend an invoice in the proper format instead of getting rejected and going through the lengthy formal channels.
Don’t let problem clients linger
Analyze your accounts receivables by “vintage” on a weekly basis. Group amounts due by week or by month. Have a process in place with specific steps to take when a client is:
- 3 days late
- 1 week late
- 15 days late
- 30 days late
- 45 days late
Leave lawyers and bad debt collectors as a last resort. Your goal is to get paid now and sell them more in the future. Don’t ruin a relationship by jumping the gun with legal action.
Single-owner small businesses generate one third of all losses due to unpaid sales; that’s over $5 billion a year!
- 25% of small business have trouble collecting payments from customers