For businesses that are paid based on invoices sent for delivered goods or services, payment delays are bound to happen. In a small business climate where cash flow can become tight especially depending on business volume, late payments can have a dramatic effect on small business success. And it’s not just about cash flow: late payments mean that you have to spend more time chasing down customers, which takes away from the time you can spend on important administrative tasks and business development. The ripple effect of late payments extends to your employees and the small business economy at large.
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How can small businesses mitigate the damaging effect of late payments?
Know Your Cash Flow
Having your cash flow system ingrained as second nature is the first and most critical step. How much cash do you have on hand, right now? And, even if you have a large reserve available, how much of it is tied up in payments to suppliers, employee salaries and other expenses? When do these expenses bill? And can you predict significant one-time outlays that will impact your cash on hand reserves? Answering all these questions will help you keep above water if a payment or group of payments comes in late. This perspective should cover at least the next three months of your operations.
Take it Seriously
The time to take serious action regarding late payments is when several of your requests have turned up no response. If an invoice ever exceeds 90 days past due, don’t hesitate to ramp-up the pressure; the use of a collection agency or legal action may be your only means of getting paid.
Leverage Technology
It may be beneficial for small businesses to partner with rapid and efficient payments platforms such as Paypal, in order to offer customers the largest variety of options when it comes to paying their invoices. As a general rule, when you make it easier for your customers to pay, they’ll pay sooner. On the administrative end, there are apps like DocuSign that facilitate secure, digital signatures mean there are no excuses for not processing a payment because someone in your business was not present to authorize it.