.svg)
Editor's Note: The Fundbox Editorial Team has partnered with us to write this great guide to help you get all of those invoices paid quickly. As a part of our partnership, Fundbox has offered Alignable members $100 off fees. Use this link to apply or ask Fundbox questions directly.
One of the most challenging aspects of running a small business can be managing cash flow when you’re juggling late-paid invoices. At some point, most businesses will face cash flow obstacles due to outstanding invoices in their accounts receivables. Sixty-four percent of businesses report that if payments came in on time, they’d be able to invest more effectively in growth and expansion.
Here are our top tips for small business owners looking to discourage late payments and ensure that funds hit their bank accounts on time.
If your business is just starting, or if you’re a sole proprietor or freelancer wearing several hats in your business, you may be tempted to forgo paperwork when onboarding clients or bringing in new accounts. However, it’s important to protect yourself with binding contracts to make sure that you’re paid accurately and in a timely manner for the products or services you’re providing.
Most accounting, electronic document, and customer relationship management software has built-in contract creation features. You can also access contract templates, like this one from PandaDoc, with a simple web search.
Net-30 payment terms — meaning invoices must be paid within 30 days — are common across most industries, but small businesses can benefit from tighter net-15, net-10, or net-7 payment terms to help keep cash coming in more frequently.
Always include your payment terms on your invoices to ensure that you have something concrete to refer back to if the payment is late. List the date that you’re issuing the invoice alongside the invoice due date, and make sure they’re featured prominently on your invoices. Keep track of those timelines in a spreadsheet or your accounting software.
Be sure to include stipulations like deposits and payments to be made in installments throughout a project in your contracts, as well. You can also outline late payment fees or interest penalties in your contracts to deter clients from delaying payment. Most businesses charge 1-1.5 percent in fees, but each state has specific limits for how much businesses can charge in late payment penalties. You can also consider offering early payment discounts — if your business model allows it.
Providing clients with multiple ways to pay makes it easier for them to pay you on time. While paper checks are still (surprisingly) a widely used payment method for B2B companies, digital payment options are much more efficient.
ACH transfers enable your clients to deposit money directly into your bank account from their bank accounts. For ACH transactions, you’ll need to provide your routing and account number to your clients so they can set up the deposit through their banking portals. ACH transfers may cost you or your clients a small fee, but they’re usually well worth the investment for both parties as they significantly streamline the payment process. Be sure to include in your contracts who will be responsible for these transaction fees.
In addition to ACH transfers, there are also plenty of other digital payment processing options. Many freelancing and accounting software programs provide digital invoice payment features that allow your clients to pay by credit card. Accepting eChecks is more cost-effective than taking credit cards and enables your clients to pay as they would by paper check, with the money arriving in your account within three to five business days.
Investing in strong client relationships — by maintaining consistent communication, delivering great work, and building trust — is one of the best ways to ensure that customers will pay you on time.
Particularly when you’re working with larger companies, developing a direct relationship with the check signer or accounting department at your clients’ companies gives you a point of contact who can help manage any issues. Make sure that your invoice is landing on the right desk and that all of the appropriate parties know that the invoice has been sent.
Following your clients’ invoicing procedures, sending invoices promptly after work is completed, and including personable messages alongside your invoice submission will help you build a positive rapport that can help speed the payment process.
If late payments are a chronic issue in your business, there are a few ways to take control of accounts receivables and cash flow.
First, assess your client relationships. You may want to consider letting go of clients who do not respect your payment terms. If you’re still waiting on a large payment, you can issue an official overdue invoice letter that states that you will take legal action if the invoice is not paid by the date you specify.
There are also financing options available to help you successfully manage cash flow on an ongoing basis and get some peace of mind around your accounts receivables. A business line of credit from an online lender like Fundbox can give you flexible access to more working capital while you wait for late invoices to be paid. With additional financing, you don’t have to wait on your accounts receivables to invest in growing your business — empowering you to achieve your most ambitious business goals.
Fundbox offers working capital and spend management solutions to help small businesses optimize cash flow. If you'd like lending support or education make sure to check out Fundbox's Community Group on Alignable. Or, learn more about how to apply with Fundbox directly here.
