Wouldn’t it be great if all of your clients paid their invoices on the due date? Because this does not always happen, it’s important to be creative when it comes to collecting payments, especially on past due invoices. By doing so, you can keep cash rolling into your accounts and keep your customers happy.
Installment Plans to Improve Cash Flow
Consider establishing an installment plan for clients who consistently fall behind on their payments. This type of agreement outlines a payment plan for the future that breaks an invoice down into payments your customer can manage. First, think about giving the customer extra time to pay the past due amount. You can continue providing services during this time or put the services on hold until the customer pays the balance in full. Then, you can determine a manageable monthly payment for this client. It’s a good idea for you and the client to agree upon a set amount.
An installment plan allows customers who are behind to start fresh and gives them a new opportunity to pay on time. The payment plan can become another legal, binding agreement between you and the client. Another benefit of an installment plan is that it allows you to offer a flexible payment option. Your client may be a seasonal worker or a freelancer with an unpredictable income. A client on an installment plan may be able to pay a large enough amount to cover multiple months at once. An installment plan allows you to work with your clients, and if necessary, you can hatch out a plan or create a specialized agreement for a specific customer.
Maintaining a Good Business Relationship
The concept of an installment plan or agreement to break up a large invoice impacts how your client approaches their business. For example, the opportunity to create a payment plan may prevent the customer from giving up when bills begin to mount. Accepting partial payments may help alleviate a client’s worries about past due debts.
Extending a client’s due date or establishing a payment plan is a simple yet powerful gesture of good customer service. This arrangement also offers a few more benefits. First, you extend the window to receive payment, increasing the odds of getting payment. Second, you increase your chances of maintaining a good business relationship with your clients, which often leads to future business. In addition, when clients post public customer reviews or make comments about your business, they are likely to say something positive, which can lead to new business.
Another benefit of arranging to collect payments in the future relates to interest revenue. When you extend a past due invoice’s due date period, you are essentially loaning your customer money. Therefore, it is reasonable and customary to charge an interest fee for this “loan.” You can charge it in the form of a late fee or apply an interest rate until they pay off the amount they owe. Keep in mind that the goal is not to earn money. The top priority is to give an incentive to pay as soon as possible.
Improve Cash Flow by Offering a Prompt Payment Discount
After delivering your products or services, it is important for you to be paid as early as possible. Consistent cash flow is essential since you need to pay your expenses, such as employee salaries, office expenses, and money you owe vendors. If you don’t have a positive cash flow, you may need to take out a loan to cover your bills.
Encourage your customers to pay early by offering prompt payment discounts. For example, you can offer a 2% discount to customers who pay within 10 days of the invoice date. Early payment is particularly important if you think there is a chance a customer may be in financial trouble. With a longer wait, there is a greater risk you might not get paid. You can also encourage customers who generally pay their invoices on time to submit payments even earlier.
Increase Cash Flow by Offering Discounts to Specific Customers
There may be times when your small business needs to generate short-term cash flow to meet financial obligations, such as unexpected maintenance expenses or adding a new employee to payroll. A great way to generate short-term cash flow is by offering custom discounts to specific customers. This may result in lower total revenue in the long term, but obtaining a percentage of that long-term revenue in the short term is better than defaulting on business obligations. You may want to offer discounts to every customer, but you might have to give up too much long-term revenue.
Another option may be to analyze your customers’ transaction history. You could send a message to your most loyal customers to offer them a loyalty discount on a certain product. Perhaps your sales data shows that another subset of customers only purchase when products are 25% off. You could target this select group with an even larger discount offer on a specific product, as they are more likely to buy. The key is finding the right groups of customers to offer the perfect discounts to, which should increase the likelihood of quickly triggering a sale. Decide how much long-term revenue you are comfortable with giving up to obtain a portion of now, and start sending targeted offers to specific sets of customers.
Offer Discounts for Cash Payments
Offering discounts for cash payments gives you immediate access to the funds. Right after you receive a payment, you can turn around and spend that cash. By offering a discount for cash payments, you have fewer cheques to deliver to the bank. You reduce the risk of the bank incorrectly posting the cheque into a wrong account, the cheque getting lost on the way, or cheques returning due to insufficient funds. Another benefit – cash payments don’t have processing fees. By receiving cash instead of credit card payments, you avoid having to pay processing fees and related charges.
Not many companies offer discounts for cash payments, and it could be a great way to develop relationships with customers. Your clients appreciate being able to pay lower prices and are more likely to reward you with future business.
How to Maintain a Positive Cash Flow
Consider these additional tips for maintaining positive cash flow even if you just launched your business:
- Send email invoices using your cloud accounting software. Email invoices arrive in recipients’ email boxes immediately, which can speed up payment.
- Offer loyalty programs, since earning perks and points can encourage customers to give you repeat business.
- Sell add-on products, such as service warranties. Customers are often willing to pay for add-on products and services that offer peace of mind.
Your company’s cash flow is the lifeline of your business. By finding creative ways to improve your cash flow, you can keep money coming in and better serve customers and clients. Improve your cash flow with invoices, payments, and expense tracking. See how much cash you have on hand with QuickBooks.