A healthy cash flow is crucial for every business. So when you’re having trouble getting your customers to pay outstanding invoices, it can be extremely stressful.
Chasing up unpaid invoices is inconvenient, yes, but it’s actually much more of a problem than that. Unpaid invoices interrupt a healthy cash flow, and without that, you might have a tough time keeping your business operational and paying your own service providers to ensure uninterrupted workflow or sales.
One way of indicating how well your business is doing on collecting payments is by calculating ‘debtor days’ for the past year.
debtor days =debtors / (average daily sales) =debtors / (sales/365)
This equation indicates the average number of days it takes your business to get paid for what you sell. If your debtor days figure is much higher than those in your Terms of Trade, it indicates that your business isn’t collecting debts as efficiently as it could be.
If you find yourself struggling to get invoices paid in a timely manner, try implementing some of the tips below to keep cash flowing through your business.
If customers have to work hard to understand how or when to pay you, they might put it off. Make things easier for them, and they’ll probably be likelier to get the payment made. Ensure all important information is clear and concise on your invoices and show your customers the simple steps they need to take in order to pay you.
What happens to a customer if their payment is late? Consequences such as a late-payment fee or interest can be a good motivator because no one wants to pay more than they have to. Make sure you outline your terms clearly on your invoice and remember that your terms can also include payment of any recovery or legal fees if the account is not paid.
If you have no system in place for following up unpaid invoices, you are making things more difficult for yourself. A standardised system streamlines the process and means you’ll be able to keep track of invoices better.
A follow-up system is crucial for making sure more of your invoices get paid. Sometimes it only takes one follow-up call or email to get the invoice paid, as oftentimes a late payment is just an oversight.
An automatic accounts system will help your business effectively manage and track invoices. That way, you can be proactive about following up those that need it, with all relevant information on hand. It’s also a good idea to automate reminder emails to your customers. Set up an automatic reminder three days before and on the day an invoice is due, as well as a reminder for overdue payments. Automating reminders can make a big difference in improving your rate of outstanding invoices, and will save you time in the long run.
Even after employing these tips, you might still find some invoices aren’t being paid. If that’s your situation, it’s time to get help.
At Lawrence Group, our cash flow management services have helped hundreds of businesses get on top of outstanding invoices. Get in touch with us today to see how we can help you.
This article is general information only. It does not give business, accounting, taxation, financial planning or other professional advice or service. It does not consider your specific situation, objectives or needs and if personal advice is required, a detailed analysis of your particular circumstances would need to be sought. Please see our Privacy and Disclaimers page for further information.