7 Tips to Preserve Your Cash Flow with Unpaid Invoices
Small business owners rely on timely attention to invoices in order to sustain adequate cash flow to cover operations. With 30 to 90 day billing leeway, it can make it hard for your company to cover daily labor expenses, material purchases or even explore growth options that become available. Obviously the best way to address a backlog of invoice payments is through customer collection efforts, but there are others ways to address unpaid invoices without immediately turning to invoice financing for improved cash flow. Here are seven tips to help preserve cash flow when you have outstanding invoices.
- Contact your slow-paying clients
As mentioned, speaking directly to the customer is the first line of defense in securing your payment. Politely but firmly ask for an explanation concerning their payment, and negotiate a payment date or payment terms.
- Make follow-up contact
If the payment due date has passed without any communication from the client, you will need to follow up and apply a little more pressure. You can opt for an email or letter with a copy of the invoice, being sure to inform them of any penalties that may be assessed for failure to pay.
- Leveraging Collections
It can save you time and effort to let a third-party assume collecting payment when all your options have been exhausted. If this step is taken, make sure you have documented the process, contact and response to your actions, to ensure your legal standing if a lawsuit is filed in civil court.
- Small business financing may offer consistency
Term loans, merchant cash advances and invoice financing are potential options for restoring cash reserves when customer payments lag behind financial needs.
- Term Loan
Often requiring an approved credit score, term loans offer a lump sum of cash which is paid back over a course of time. These either have a fixed or variable APR rate and have higher borrowing limits.
- Invoice financing
Secure cash for your past due invoices by financing them with a third-party lender. You receive an advance on the balance, often between 70 to 90% and the customer settles with the lender. Invoice financing charges a fee according the timeline of payment.
- Be more cautious with invoicing terms in the future
Having been exposed to the payment history of certain customers, review how gracious you are willing to be in the future with their payment deadlines. This could save you a lot of work and financial upset in the long-run.
