As a business owner, you will know that cash flow is essential for your business’s growth and survival, just like a vital organ in the body. Believe it or not, behind the success of every business, there should be a continuous torrent of cash flowing in, which contributes to that success.
Whether or not the stream of cash is constant depends on many factors such as marketing, branding, customer service, etc. The good news is that these factors are mostly under the business’s control, which means that you have the power to do something about them and improve your business.
However, there is one factor that is not entirely under your influence, and it is perhaps the most frustrating one: overdue client invoices.
Getting clients to pay up on time is one of the biggest challenges when managing cash flow. Although some businesses offer an effective mode for faster payments, overdue invoices still put pressure on the payment cycle.
Read on to discover eight methods you can apply to manage overdue invoices so that you can reduce the damage done to your business’s cash flow.
1. Remind your clients gently.
You can send in payment reminders via email to chase the settlement of unpaid invoices. If you are not sure what to write, you should always include the following details:
- how much time it has been since the invoice became due
- the problems that you are facing due to that particular overdue payment
If your client is still not responding, try sending repeated reminders. Recurring messages are known for putting gentle pressure on clients to pay up as soon as possible. Using invoicing software can also automate the issuance of payment reminders to save you extra time and effort.
2. Ask clients to pay in advance.
Incorporate advance payment into your business policy. It could be a lump-sum amount or a percentage of the total fees for the project. Advance payment policy is essential in preventing the invoices from going into overdue status.
Managing advance payments is not as difficult as you might think. It can be done easily with the credit management features offered by online invoicing software.
3. Have a positive mindset.
This might sound silly at first, but displaying your anxiety to the client is equally silly. Display some confidence about getting your payments by discussing why and how other clients pay up on time.
You can come up with your own story, and it is acceptable to do so because there is nothing wrong with asking for the payments you deserve for the work you have done.
4. Send a statement of account.
You must send out billing statements to clients to ensure that they are aware of the overdue invoices. It is best to attach a reminder email focusing on overdue invoices along with the statement.
5. Call them.
You can give them a call and have a conversation about the factors which have led to delayed payments. This will deliver a solid reminder to the client that payment has to be a priority. By having a verbal conversation, you can also fathom out if the situation requires further action.
6. Escalate it at the right time.
Keep in mind that each client has a different payment cycle. Some agree to pay after 30 days, while others pay after 45 days.
The solution is easy: send each of them a single reminder 5 days prior to the payment cycle via invoicing software. Avoid putting on unnecessary pressure because it can ruin the relationship and delay the payments further. On the other hand, you will need a more rigorous follow-up strategy for the chronic late payer.
7. Deploy a staff member.
Assign someone who is familiar with invoicing software to perform payment follow-ups and reminders. Don’t waste time and energy in chasing payments as a business owner. Let the respective sales and accounts managers handle them.
8. Charge interest on overdue invoices
It is entirely legal to include the charging of interest on overdue invoices in your business policy, as it serves as compensation for late payments. However, you should declare the late fee or the chargeable interest to clients beforehand. This allows the client to be psychologically prepared for the charge and ensure that payments will be made on time.
These are the eight ways to deal with overdue client invoices. They are simple and easy to apply. What is more impressive is that they are particularly effective in securing your business’s cash flow. To better keep track of your invoices, try using Financio’s cloud-based accounting software. For more information, feel free to get in touch with us.