If you rely on business-to-business (B2B) services for revenue, there may be times when you must provide work for clients without first receiving payment. This is a standard business strategy, but it carries some risk if the client doesn’t pay on time, leaving a hole in your cash flow. This means you will have less money available for essentials. Effective debt collection measures decrease the likelihood of these types of headaches.
Non-paying clients may not have paid since your invoices do not clearly state that payment is due within a particular number of days. You can reduce such errors on your end by evaluating your invoicing policies on a regular basis. This process requires looking at how you prepare invoices and ensuring that each of the following is present:
It is important to review not only the bills themselves, but also the process by which they are sent. If you bill your clients every month but are always short on cash, switch to billing them twice a month. Alternatively, if you usually send invoices on the last business day of the month, try sending them on the first business day of the following month. This will help ensure that customers who make payments at the beginning of the month will not forget to pay you.
Maybe your business creates invoices using Word or Excel templates. Though consistent, this method requires a lot of manual labor that might lead to billing errors. To cut down on these mistakes and save time, think about switching to invoicing software.
Automation in the invoicing process allows for tracking of client interactions with invoices, automatic follow-up on overdue accounts, and auto-population of invoice fields.
How you send and follow up on invoices affects payment speed. Many businesses send bills by email or apps and follow up delinquent invoices with quick emails, however email may not be suited for urgent debts. Set a policy to call debtors more than 14 days late.
Your invoices should provide payment methods. Not all payment options will be automatically accessible just because you list them as ones you accept. Don’t just say you accept PayPal—provide a clickable link.
All clients should know your billing protocol, whether you have a credit policy or standard invoice terms. This could involve having qualifying clients sign your credit policy agreement as part of the initial contract or adding legal text to your invoices explaining how you might collect overdue debts.
Invoicing a company’s accounting department is different from invoicing your business contact. The accounting team may not get invoices sent to your contact at a client company, and an invoice that is late in reaching accounting will not be paid right away. Ask your clients who to invoice.
It is unavoidable that at least one of your clients will consistently pay late. You can tailor your payment terms to these clients, but stronger collection tactics are available.
If your late client rarely answers to emails but is responsive to phone calls, ask your accounting team to call them within a particular time frame after payment is due. If this client has been late with one payment method, offer to switch. These customized collecting methods may help clients pay.
Call the client a week before the deadline to discuss any difficulties and record any payment promises. Stick to phone calls rather than email because phone calls are much harder to ignore. If you have the funds, hire an accountant or bookkeeper to supervise the invoicing and payment process. Accountants can also assist with tax preparation and other regulatory requirements.
When a client’s debt remains unpaid, neglected, or resisted for an extended period of time, you may feel compelled to contact a debt collection agency. Both freelancers and small businesses can engage debt collection services to collect debts from non-paying clients, but this is dangerous. To begin with, it’s an excellent strategy for alienating the customer. It’s also expensive, typical costs range from 25% to 50% of the debt being pursued.
However, enlisting the help of a professional collection agency may be your best choice in some situations. If your debt is more than 90 days overdue and other efforts to collect it, such sending new invoices with late penalties or interest, have failed, then this is the situation.
If you find yourself in the position of having to pursue collections, read through our reviews and contact us to get your money fast. You should also become acquainted with the Fair Debt Collection Practices Act to ensure the collection firm is acting within the law and keeping you safe from liability.
Your clients may pay sooner if you combine your own collection techniques with the support of third-party professionals. Simply be patient, attentive, and tactful throughout the process.