If you’ve ever managed accounts receivables, you know dealing with slow-paying customers gets complicated—especially for small businesses.
That’s because your customers all have very different billing practices that are prone to error.
The most important action you can take is control is how you organize your accounts receivable.
Real-time insight into your cash flow can help you identify slow paying accounts more efficiently. The less time that passes between invoicing and collecting payment, the less time you have for making mistakes.
With the right approach, you can turn most of your slow-paying accounts into ones that remit payment to your business faster.
Here are some tips to help you speed up your accounts receivables process—and maximize your cash positioning, as a result.
1. Maintain a paper trail
You can’t hold customers accountable to payment terms that you haven’t put in writing.
If you are requesting payment within two weeks, clearly say so in the contract. Reinforce your terms at multiple touch points: during your proposal process, when you sign your contracts, when you create a statement of work, when you issue a purchase order, when you send an invoice, and when you follow-up with your customers.
This guide to choosing and defining payment terms will help you through the process of choosing methods, timing, and contractual stipulations for getting paid.
2. Develop a relationship with your customer’s accounts payable (A/P) team
If your customer is another business, your point of contact likely isn’t the person responsible for paying vendors.
That’s why, it’s important to build relationships with your customer’s finance department as early as possible.
You can check in, as often as necessary to make sure that your payment processes according to schedule.
If you’re not sure when to expect payment, reach out and ask.
Having a direct contact within your customer’s finance team helps you establish predictability over your payment terms—preventing problems before they can disrupt your cash flow.
If you need additional guidance, here’s a set of tips for getting your clients to pay your business faster.
3. Ask about purchase orders
Many larger organizations require a purchase order request from the person placing an order before the accounts payable department will pay the invoice.
When you receive an order from a new customer, ask whether the company requires a PO. If so, the person placing the order should provide you with a copy or, at the very least, a PO number. Include this number on your invoice.
This will ensure that accounts payable can match your invoice with the corresponding purchase order — and authorize payment in a timely manner.
4. Ask whether other forms are required
Even if a customer doesn’t send you a 1099 form in January, you may be asked to fill out and submit a W-9 [PDF].
Be proactive. If this is your first time working together, ask what paperwork is required to set you up as a vendor in their company’s system.
5. Send invoices right away
As soon as you’re ready, send your invoice.
Whether it takes the company 14 or 60 days to pay, the clock doesn’t start until your client receives your bill. Invoice templates are a great way to generate professional invoices quickly.
If you’re not sure how to create an invoice or what details to include, this comprehensive guide will help. Using a template or accounting software like QuickBooks Online can expedite the process of creating invoices from scratch.
6. Itemize everything on your invoices
Make your invoice as detailed as possible. Itemize all of the work done or products sold.
Include relevant information such as date(s), product or service categories, and unit costs.
Your customer should have access to as much or as little detail as he or she needs. If you or your customer goes through an IRS audit, your invoice will serve as a detailed receipt for quick reference.
Imagine all the questions that could come up, so that you can create documentation in advance.
If you haven’t chosen accounting software and need to create an itemized invoice on the fly, use this free invoice template generator from QuickBooks.
7. Invoice more often
As a small business, you can be more flexible than a large company.
Some companies may be more likely to pay several small invoices faster than one large invoice.
Invoice these clients often. If you are working with a customer on a monthly basis, on a retainer model for instance, consider sending invoices at the beginning, middle, and end of each month.
If your company provides project-based work, issue invoices at the beginning, middle, and end of each deliverable.
8. Require full or partial payment up front
Your customers do business with you because they have a need.
Collecting full or partial payment up front keeps your customer accountable, and obviously, guarantees you get paid.
Be aware however, that asking for up front payment also means your customer needs two things:
- A high degree of trust in your skill or ability
- A guarantee they’ll get what they’re paying for
The first part is entirely dependent on your body of work and/or your personality, but the second is one provides some assurances that you are accountable to the customer.
Often, slow-paying accounts happen because the customer feels uneasy about the relationship. Keeping yourself accountable – in writing – can relieve some of that tension and provide comfort in providing payment up front.
9. Use the phone for follow-ups
Don’t just stick to email messages about late payments.
Make personal phone calls. Be friendly and open the conversation by verifying that they received your invoice and have all paperwork required for payment.
At the end of the conversation, ask when you can expect to see the payment. If you accept mobile payments, you can offer to collect a credit card number.
10. Create a late payment policy
You can’t force your customers to pay you on time—but you can maintain an aggressive late payment policy.
Start including finance charges as soon as a payment becomes late.
You may choose to implement a daily fee, weekly fee, or interest on the total amount owed. If your customer still doesn’t pay, you may need to send him or her to a collections agency.
Late payment policies can be challenging to enforce, especially if you’re a business owner who self-identifies as a nice person. By creating one upfront—and alerting your customers to it—the chances that you’ll need to charge interest or pursue collections are low. But if you do need it, you’ll be glad to have it handy. Here are some resources that can help:
Final Thoughts: Automate and Digitize Your Operations
One way to eliminate these time sinks is to move your accounting operations online.
Using software like QuickBooks, you can create online and mobile payment portals, set up a credit card processor, send invoice reminders, track whether customers are viewing your invoices, see statuses of payments, and set up automatic payments.
Along the way, your software will create an online paper trail and a neatly packaged transaction log, along with faster payment times. With data on-hand, you can focus on supporting the customers who are most likely to need administrative guidance.
As a result, your business runs more efficiently and you get paid faster..