Healthy cash flows have a central role to play in the long-term survival of any business. In a perfect world, companies should be enjoying thriving business, driven by growing client or customer’s relationships where goods and services are always paid on time. The unfortunate reality is that some customers or clients take ages to pay which is detrimental to any business.
In fact, 58.2% of business owners identify slow paying clients as their biggest challenge to maintaining healthy cash flows, according to Letter Hub. While no staff member wants to be dubbed 'the bad guy' who collects the delayed invoices, it has to be done, especially when delayed payments set the business back by miles.
By implementing effective cash collection strategies, you can improve your business to client relationships while increasing your competitiveness.
Here are five tips for revamping your collection strategies:
1. Assign the Collection Task to the Right Individual
Nobody wants to be the one requesting for the unpaid invoices to be offset. As a result, most managers leave the tasks to their receptionists, but the majority aren’t encouraged or experienced enough to know how to go around the process. With an impaired collection system comes unhealthy cash flows and the potential collapse of your business.
Instead of just throwing the collection task to the nearest staff member, designate it to someone with the skill and the motivation to do so - a salesperson will do the job just right.
Their job should be to track down the unpaid invoices and kindly request for payment after inquiring about the client’s satisfaction. To further encourage them to commit to this task, offer them incentives once clients offset invoices in good time.
2. Automate the Invoice Management Task
Sometimes cash is tight on the side of your client, and in such situations, businesses tend to divide expenses into ‘must pay’ and ‘like to pay’ options. Your aim should be to appear on the former list. Working with an invoice tracking software can help you achieve this by sending reminders for missed invoices and track those paid on time.
The invoicing software also reminds slow paying clients of the penalties that spawn from late payment in a progressively strident manner. When looking to add a touch of professionalism to your invoices, some can provide you with cost-free invoice templates, according to Freshbooks. Once you present yourself as a professional business, clients will treat you as such.
3. Try to Get Paid in Advance
Whenever you start a job with no negative balances, you are on the right track as you won't have to get stressed with the task of collection. In most cases, clients are more willing to pay in advance depending on the level of trust they have in you. It might help to offer a discount as an incentive for clients that pay a partial or the full fee in advance.
If a company is willing to pay in advance, ask for the largest amount that they can get up front. The standard upfront amount in most industries is 50% of the project costs. This will help cover your out-of-pocket costs which will ultimately save your cash flows.
4. Set Up a Retainer
Retainers are amazing for both parties - you and your client - as they make invoice tracking easy while reducing billing and collection costs. Start by analyzing the total cash the client typically spends on your company per year and divide it into monthly fees accordingly. You can then present a scope document which will explain to them what they get per month and at what fee.
Once they agree on the set terms, you can set recurring invoices and automatically send them at least five days to the payment time.
Consider setting up an automatic payment from their account every month or even charge their credit card monthly. Through such a system, you can shift your focus to delivering services to the client as they automatically offset the invoices.
5. Make the Collection Call Early
Unlike the common misconception that the first collection call should be once an invoice is already 30 days late, you should call the client five days before the invoice is due. This gives you the potential to cure the late payment problem at its infancy stage. As mentioned above, try your best not to sound too strict as most clients will feel intimidated that you are calling even before the day is due.
To smoothen the conversation, start by asking them about what they loved about your services and what changes they would love to see. In some cases, a client might point out issues with your invoicing systems that you didn’t know about which can help reduce late payments.
Once you are done with this, politely inquire if they received the invoice and if there is an issue with it. This acts as a reminder by itself without necessarily sounding too harsh.
A relationship with a client is only healthy if you both fulfill your end of the bargain in good time. Having a strong collection strategy is a step in the right direction as it ensures that your cash flows remain healthy once clients pay on time.
Consider the above tips to remain competitive in your business sector.