Business owners can all agree that reliable cash flow is paramount for effective operations. Yet many will agree that invoice collection on slow-paying collections is among the most frustrating tasks on the to-do list.
First notices, second notices, phone hang-ups and threats of litigation seem to be siphoning away your productive time that could be invested in overseeing more rewarding work efforts. You have your own vendors and suppliers who want their payments yesterday! What can you do to collect on unpaid invoices from those slow-moving clients?
1. Invoice Collection Starts with Clearly Defined Payment Terms
Anyone can fall onto hard times, and a little compassion can go a long way toward maintaining a positive business relationship. Yet this doesn't mean the client can change the terms of your agreements to fit their needs.
At the end of the day, their financial hardships shouldn't be a detriment to your operations. If you delivered your work or product, then you deserve to be paid as you originally agreed.
Your contract is your greatest asset. Contracts are your support in times of trouble, but they also make sure your expectations are absolutely clear before the business relationship comes into effect. It allows you to remind the client about the payment policy they agreed to before receipt of services. Your contract is your support if the time comes for dispute resolution, third-party mediation, or even small claims court.
Certain terms you may want to include in your contract (based on the type of service you provide):
- Payment time limits
- Partial payment schedules for delivered work
- Upfront fees
- Late fees
- Arbitration/dispute resolution terms
- Ownership rights of work until final payment is received
- Guarantee of satisfaction terms and time limits
Your contract can diffuse many arguments and headaches when it comes to payment schedules and late payments. Go over the contract to ensure there are no loopholes that would allow a client to wiggle out of payments by coming up with unreasonable excuses.
2. Set up an Invoice Calendar
Invoicing can be among the most annoying tasks you deal with as a business owner. Many business owners simply aren't strong at staying on top of administrative tasks. You lose track on when payments should have come to the office, or when you last sent an invoice to the client or reminded them of an upcoming due date.
An invoice management system connected to a calendar helps you organize your bookkeeping and accounting tasks with minimal effort. YayPay includes powerful automatic remainder features that allow you to send invoices based on your desired contact methods, with customized messages and scheduled reminders for you and for clients. This makes sure that you stay on top of administrative tasks without effort, and that clients are aware of when their due dates are coming up.
You'll want to send out invoices as soon as the work is completed, especially for itemized work projects. Then, use scheduled reminders to stay top of mind with clients. A common system is to send a reminder ten days, four days, and the day before the due date.
3. Ensure Invoices Provide Payment Details
It won't be the first time that a client didn't pay an invoice because they were confused about the wording and lack of clarity. Sometimes there is so much information on the page that the client doesn't know when payment is due or who to contact if they are experiencing a cash flow problem and want to negotiate their terms before the due date arrives.
Customizing the invoice allows you to show clients how professional you are, and allows you to keep the format simple so the important information stands out and is easily digestible at a glance. You can easily create custom templates with YayPay's custom invoice tool.
Always have the payment amount, due date, payment processing schedule, payment methods, who to make checks payable to, addresses and phone numbers as the first details the client will read on the invoice. Payment terms and conditions can be included further down on the invoice or on the back of the invoice for their convenience.
4. Friendly Phone Call Reminders Will Open the Doors of Communication
Emails and texts are the easiest methods for business owners to get their invoices delivered. Yet you shouldn't shy away from taking a moment to call your clients to remind them about upcoming payments. This tactic is ideal with existing, big clients who are always a little slow at getting payments in yet the business relationship is important for you to maintain for the long-term. You don't have to wait until after the payment is late to begin calling, especially when you are upset and ready to get into a heated argument with your clients.
Most business owners don't enjoy jumping on the phone to try and collect unpaid invoices from slow-moving clients. That's why we include this service for all YayPay clients! Our staff is trained specifically to handle sensitive invoice collection calls and know how to help you collect invoices while maintaining a great business relationship. Curious? Learn more about our trained support staff.
5. Negotiate With Clients So Everyone is Happy
Payment terms affect more than your cash flow and operations. They affect your clients, too.
Sometimes, you may find your clients placing payments to your business below other business expenses they need to keep their operations running. They have a payment schedule set up that differs from yours, and a set date on which to send out the money. The payment terms that work for your business may not work for theirs.
While it's efficient to keep a standard contract for all clients, don't be completely inflexible when negotiating payment terms. If you can be flexible to your client's needs without hampering your own business, they'll appreciate your understanding and extra effort to help out. It will also ensure they're able to adhere to the set payment terms.
One way to negotiate payment terms may be to extend your policy times to allow clients to cover other required expenses, wait for additional cash, and then pay. Another is to allow clients to make partial payments when work milestones are completed so payments are more manageable. With the partial method, you'll have more reliable and steady cash flow as well.
Any revised terms should always be put in writing. Negotiation works better when it's done early, so set up a time schedule on when you will allow for the negotiation of your contract, such as 4 days after payment is past due, so the client doesn't use this strategy as a constant stalling tactic.
6. Be Smart About One-Time Discount Strategies
Based on your particular business model, you may be able to offer one-time discounted pricing if you are at the point where it feels like your invoices, calls, and email reminders will never pull the money out of the client's pocket.
You will be able to get something, at least, from your efforts before resorting to small claims court. If you do decide to take this tactic, place the offer in writing and be sure to emphasize that this is a one-time deal. You do not want the client to think that this is their new standard pricing terms.
7. Collection Agencies Can Help to Get Payments for a Price
Collection services are designed to automate the tasks of getting payments that are seriously past due and all your invoicing attempts have hit a wall. There are several ways collection agencies work. They will take over the collection process while you retain ownership of the invoices. They will take a small fee from every payment that your client makes. Other agencies will buy the debt outright from your company. You have to decide on the best collection method that works for your operations and the business relationship you have with clients.
When it comes to unpaid invoice collection, transparency in your payment terms and policies can relieve the pressure and the headaches of money disputes. You should also have negotiation strategies and an invoice management system in place from the outset. With these tactics, you can limit the number of overdue payments and ensure you have stable cash flow moving into your business.