Nothing can be more nightmarish for a small business than the long overdue invoices. A healthy cash flow is all that you need to stay in the business. But, the reality is that invoices are seldom paid on time and you are in catch 22 every time your own bills become due.
The problem is aggravated by the fact that you may not be comfortable chasing the money and asking your clients frequently about payments. In such situations, you have to think rationally and tackle the unpaid invoice without being tongue-tied. Here are some simple fixes to do that:
Make your Payment Terms Clear:
Before you expect anything from the clients, it is essential to make clear payment terms and stick to them. You can either go for a 30-day payment term which is sort of a norm for many industries or opt for an immediate payment. Set the rules according to your requirements of cash flow management so that your business is not affected. At the same time, it is significant to explain these terms of payment to the client as well.
Consider Charging Interest on Late Payments:
Late payments can be penalized according to the government rules and legislations as well. It is termed as Statutory Interest that may go up to 8% on the late commercial payments along with some debt recovery charges. You can make your own set of rules for charging interest. It can be extra 2% for payment after 30 days or a 3% delayed payment fee for overdue invoices. The choice is yours. And also, make it known to the client before you start working on the project.
Don’t Chase Hastily:
After the 30-day payment period lapses, don’t get reckless. Have patience and allow a grace period of 2-3 days before you pick up the phone and talk to the client. When you call them up, maintain a friendly tone because you may not like to lose a client with your rudeness. You can also send some friendly reminders through emails with a warm tone. Attach a copy of the invoice with this email. If it doesn’t work, send a statement citing your payment rules and charges for late payment. This strategy mostly works. Picking up the phone and charging interests should be your last resort.
Consider Upfront Payment:
If none of these work and you want to get rid of late payments forever, this is the best thing you can do. Ask your clients for an upfront payment. Don’t start the work until they clear the invoice. Convey your expectations to the client even before taking up the project. At the time of discussing the work details, talk about the payment terms also to avoid any misunderstanding later. You can also stop working on their project at any point if the payments are not cleared within the stipulated time.
You can make the deal lucrative for the clients by offering discounts on upfront payments. Tell them that you will offer 10% discount as a ‘thank you’ gesture for advance payments.
In this context, you can also seek the automated and professional accounting and bookkeeping services at Infognana. We can take care of your accounts while you take care of your business.