Late Payment Pitfalls: Keep Your Business Healthy by Getting Paid Fast
According to a report in 2016, 33% of businesses say that late payments threaten the survival of the company and if they were paid faster, many would hire more employees.
Startlingly, the majority of respondents to the EPR Survey “believe that the withholding of payments after due date is intentional.”
The Issue with Late Payments
Unexpected delays in payments can have a catastrophic affect on businesses that have little or no cash reserves or credit to rely on. For businesses that are paid based on invoicing for delivered goods or services, payment delays are bound to happen. Nonchalantly regarding your receivables as “better late than never” could mean life or death to your business.
If you use an invoicing system in your business, you know how important it is to get paid on time. Simple payment delays could cost you more than just a few dollars; payment delays can happen at any time, often out of anyone’s control.
A delay in payment can occur for many reasons. It can be as simple as someone being on vacation when their approval is required to sign off on the invoice. More complicated reasons include a change in direction for the overall plan of which you are a part.
Finally, motivation to pay invoices is a key issue that should also be considered. Whether your invoice is big or small, the impact on you and your business can be significant.
From your perspective, the reason for the delay does not change how your business reacts to non-payment. Staff pay checks, utility bills, material bills and other costs of business operation continue as per usual, regardless of whether or not you have been paid.
Late Payments Impact Your Business Every Time They Occur
So what can you do to protect your business while continuing to grow and profit? You need to start by:
• Understanding the problem late payments create for your business
• Embracing the importance of accurate cash flow projections
• Taking action to safeguard your business against late payments
• Return the favor by promptly paying your suppliers
The Importance of Cash Flow Projections
It’s critical that you build and maintain accurate cash flow projections in a way that is visual and concrete – considering your cash flow is simply not enough. Map out the expected inflow and outflow of money into your business in the coming weeks and months. What expenses are on the horizon? When are you expecting customer payments and for how much?
All sorts of issues can change the dates and amounts of payments. Unexpected expenses often come as a poorly-timed surprise and can simply be missed in the flow of urgent business, so make sure that you’re updating your projections on a weekly basis.
• Plan your budget and know your break-even point
• Visualize what money is going in and out of your business
• Predict when money will enter and exit your bank account
• View your current and planned sales for the year
• Determine how much you plan to spend this year
Using Cash Flow Projections to Reduce Your Risk:
Once you have a handle on these important aspects of your business, you can take action to protect your business and plan for growth. Ask yourself these questions:
1. Should I look to extend my bank loan while my business is profitable to protect my company?
2. Can I branch out sales to different markets, different countries?
3. Should I consider exploring new services or products to offer our customers?
4. Is it a good time to expand based on cash flow and sales forecast?
5. What core needs and expenses are related to expansion?
6. Do I need to hire more staff? Is more space required?
7. When is a good time to reinvest money from my business?
The list of questions can and should seem endless. The good news is that you don’t need to have all the answers. Asking yourself opportunity-driven questions about your business and its cash flow puts you in a growth mindset.
[bctt tweet=”Maintain up-to-date cash flow projections so that you can identify shortfalls and give yourself time to react. #smallbiz”]
By maintaining up-to-date cash flow projections you’re better prepared to identify shortfalls and give yourself time to react. With a little pre-planning, you can work toward having cash reserves ready so that you can take action, insure against risk and loss, and continue to grow your business.
Tips for Dealing with Late Payments
Here are some quick tips for speeding up payments and improving your cash flow:
1. The Contract and Terms
Speeding up your payments starts with your contract with the client. Here’s where you detail essential factors in your payment terms. Here are a few concepts to practice then place in your negotiation arsenal:
• Request a payment up front
• Progress payments at key stages of delivery
• Detail timelines for approval on their side to avoid delays
• Add late payment penalties
2. Project Management and Invoicing
• Push your team to deliver early so that you can invoice faster
• Encourage early completion and delivery
• Pay close attention to delivery requirements
• Stay on top of approval process and encourage prompt sign-off
3. Follow-up with Your Customer
• Contact them immediately if a payment is late
• Find out why payment is delayed to help avoid in the future
4. Options for a Cash Flow Crunch
• Speed up payment from your client by offering a discount for timely payment
• Arrange some temporary credit with your bank (they like lots of lead time)
• Defer outgoing payments when possible
Once you get your immediate cash flow under control, make sure you continue to track your cash ins and outs as well as build out projections on an ongoing basis. Identifying potential problems early gives you more options to resolve the problem and puts less stress on you and your business.
Interested in more information about cash flow management, sales forecasting, and how to visually structure these and other elements to grow your business? Check out Dryrun on the web or chat us up via email at firstname.lastname@example.org