3 Reasons You're Not Collecting Your Receivables and How to Fix It
Are you having trouble collecting outstanding invoices in a timely manner or at all? If so, you're not alone -- Entrepreneur estimates the amount of unpaid invoices owed to small businesses is $825 billion. That doesn't mean there's nothing you can do, though. Here are three of the most common reasons you're not collecting and how to fix them.
1. Customers Sitting on Invoices
Customers simply taking too long to pay is one of the most frequent problems. It's common knowledge that the bigger a company is, the longer they will take to pay you. And even for smaller customers, taking the cable company approach and sending them to collections will only cost you future business.
In most cases, slower payers are simply trying to hang on to their own cash as long as possible. To nudge them toward faster payments, offer a small discount for early payments. Even 1 percent or 2 percent is usually enough.
2. Lack of Payment Options
Not giving your customers a choice of how to pay you leads to a combination of procrastination and not being able to pay you on your terms. Consider what can go wrong if you mail invoices and get checks mailed back:
• Mail delays.
• The invoice sits on someone's desk for weeks.
• The customer waits until they have cash in the bank so their check won't bounce.
• Their check bounces anyway.
Now consider an email invoice with both ACH and credit card options.
• Instant delivery.
• Smaller customers can immediately pay by credit card without worrying about their cash flows.
• Bigger customers will still do their thing and take a while to send an ACH, but at least you cut out mail delays.
In short, the easier you make it to pay you, the faster you get paid.
3. Not Knowing Your Numbers
There are two very important stats you need to know.
• Individual invoice ages. How long has an invoice gone unpaid? The longer it takes, the more likely it is that you'll never see the money. The customer could go out of business, or the invoice could end up just falling through the cracks.
• Changes in customer payment patterns. If a customer starts paying more slowly, there's a good chance they're having financial problems that could lead to them not paying future invoices at all.
Knowing these numbers lets you follow up on unpaid invoices while they're still relatively fresh and allows you to manage your risk when a customer's financial status changes.
To get help tracking your invoices and optimizing your cash flow, contact Honest Buck Accounting.