Many companies generate more business during the holiday season than they do at any other time of the year. According to a survey by WePay of more than 500 U.S. small businesses, the average small or midsized business earns 20% of its annual revenues in the weeks between Thanksgiving and December 31.
However, these same businesses also experience payment problems during the holiday season. More than 21% of business owners surveyed struggled with late payments between Thanksgiving and December 31. In fact, payments and accounts receivable challenges are prevalent throughout the year, with over two-thirds of respondents reporting at least 10% of their customers consistently fail to pay on time.
Payment Problems Impact Productivity and Cash Flow
Payment problems can impact small business productivity by decreasing the amount of time business owners have to spend on more important issues. Statistics show nearly six in 10 small business owners have to follow up at least twice on average to get late-paying customers to meet their obligations.
Not getting paid on time can also result in cash flow problems. Without the money you are owed coming in, you may not have the funds you need to grow your business by investing in more inventory, hiring additional employees, or launching a bigger marketing campaign.
Strategies for Handling Late Payments
Managing cash flow is a major concern year-round for companies of all sizes, with clients stalling payments topping the list of worries for many small business owners. While there is no way to ensure that every customer will pay on time, the best approach is to be proactive. The following four steps can help you minimize the damage caused by late payments and still maintain good relationships with customers and clients:
1 – Invoice Immediately
Some customers pay late because they receive invoices long after they have used the products or services for which they are receiving a bill. One way to prompt them to pay faster is to issue invoices immediately after the customer has received the goods or services. Review your invoice template to make sure it is easy to read and understand. The customer should be able to quickly see the amount due, the due date, and what the bill is for. Make sure that your accounts payable staff is sending bills to the correct postal or email address as well as to the department or person responsible for making payments.
2 – Monitor Payments
Staying on top of your business finances will allow you to pinpoint potential problems early. Keep track of what has and has not been paid. The right accounting software will make it easy to generate an income statement, balance sheet, and cash flow statement so you can track which customers continually pay late.
If a payment is late, don’t wait to follow up. Reaching out to customers as soon as their bill becomes past due is the best way to ensure that you will receive a payment by the end of the year. The sooner you take action after a customer’s invoice becomes past due, the better. The longer you wait without getting paid, the greater the chances you will never collect.
3 – Offer Incentives
Incentivize customers by making it attractive and easy for them to pay you. Consider offering early payment discounts, like taking 10% off the invoice amount if a client pays within 30 days. You can also discourage late payments by charging a late fee.
You’re likely to receive a payment even faster if you provide the option to pay electronically. Use available technology to offer multiple payment options, along with reminders that include payment details. Accepting more than one form of payment gives customers flexibility and convenience, simplifying the process of paying their invoices.
4 – Seek Professional Help
Ultimately, you may have customers who simply refuse to pay their debts. When this happens, small business owners often opt for outside help to recoup their losses. Outsourcing to a third-party firm or a commercial collections agency relieves you of having to constantly pursue payment of unpaid debts, allowing you to focus on day-to-day operations.
Debt collections agencies specialize in recovering payments that are past due, typically by 90 days or more. They rely on various forms of communication to reach customers and persuade them to pay, including phone calls, letters, and emails. Good collections agencies are effective in recovering debts because they understand which strategies are most effective. In some cases, they turn to the legal system to collect if other efforts are unsuccessful.
For chronically late-paying customers, you will need to consider if it’s worth continuing the relationship. If you decide to keep doing business with them, protect yourself by requiring a cash deposit upfront or payment upon delivery.
Navigate Shortfalls with Working Capital Financing
Successful small business owners who face the challenge of late payments do not need to be strapped for cash as a result. Summit Financial Resources is here to help you take advantage of opportunities to improve receivables as well as navigate any shortfalls. We offer working capital loans for small to medium-sized businesses that involve using your accounts receivable as collateral.
Because we are not regulated like a bank, we can take more risks and make funding decisions faster. This means we can respond to the changing needs of your business without a lot of red tape and expand your cash flow in a matter of days or weeks, not months.
Late-paying customers can cost you time and money, but Summit Financial Resources supports the growth of your business by helping you minimize risk, develop stable customer relationships, and maintain the cash flow you depend on to meet current obligations and handle the unexpected.
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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.